My good friend of many years called me the other day in a panic. He was well behind in payments on an investment property he purchased a couple of years ago. The reason he is behind is not because of any hardship no, the reason he is behind is because he simply decided to stop making payments on the property. Probably not the wisest decision but his justification was this. He initially paid $425,000. His down payment in cash was $115,000.
After carrying the property for the past two years he now says the property is worth $155,000. So let me ask you, what you would do if you were in his shoes? By the way this was a condo project so he is also paying hefty monthly HOA charges along with the mortgage. Now my friend is not a wealthy man, no he is a hard working guy who gets up every morning and goes to a “real job” puts in a 50 – 60 hour work week and tries to save as much as he can.
After sitting on the sidelines and watching values insanely go up he decided it was time for him to jump in.So he takes most of his life savings and plunks it down on what he thought would be a great investment and a future nest egg for him and his wife. I could go on but stories like these are going on in many parts of the country and it is really tragic. Credit Scores are being damaged beyond belief, bankruptcies are sky high and people’s lives are being changed forever. And I don’t mean in a good way. I thought about the abundance of people like him who don’t know where to turn or what to do. These experiences are very new to them. They are people who have always paid their bills on time, pay their taxes and contribute to the American economy and way of life, which we have all enjoyed for a very long time.
I say to you, the novice Real Estate investor who may be in the same boat. Please keep your head about you. Realize that if you decide to deliberately stop making payments on a property that there are serious consequences for these types of decisions. I encourage you to explore every option, and they are many. To start with, talk with your lender and lay your cards on the table. Make them aware of what you are dealing with and you do not expect to go it alone.
They have a definite interest in your property (which is actually their property) until it is paid in full so try to work something out. No there may not be easy answers right now but how will it feel if you damage your credit to the point you can no longer be eligible for a credit card or even worse, with many companies doing background checks your score may keep you from finding a job or advancing in your current one. Remain calm and confident and seek professional help as quickly as you can. Get all the facts first, the good the bad and the ugly. Talk to those who are going through similar situations and try to gain insight on how it relates to your situation.
Before you make a final decision make sure you are clear on what the downside is. Sometimes it may very well be in your best interest to stop feeding an investment when you cannot pay your basic necessities but think it through, all the way through. These are different times right now and many lenders have finally awoken to the realization that something needs to be done on their part as well as yours. You have nothing to lose by trying. Don’t make the huge mistake of avoiding their calls or avoiding the problem. It is not going away. Be proactive and after making every effort and exploring every option only then determine your final call knowing what the costs are and knowing you did everything you could