Did you get caught in the middle of a real estate bust?
Whether you purchased your real estate as an end user or investor, selling in the middle of a bust period could be a struggle. I emphasized "could" because there are solutions.
If you will treat your real estate purchase as an investment and think like a businessman, you can hedge it better. In any business, there are periods when sales are low and sometimes coupled with tough competion. This is a reality most businesses have to face. However, it is just part of running a business. Instead of closing down the business, you look for strategies to conquer your market and even emerging markets. Otherwise, you will end up closing down every business you will set-up.
My point is, to learn to adapt and accept the highs and lows of the business or in this instance; the real estate cycle, with normality. If you educate yourself on how the real estate cycle behaves, then you won’t be too surprised in being caught up in the boom or bust period. You cannot predict what will exactly happen, because of other factors such as government intervention or calamities, but you can make a calculated risk. Afterall, business is all about taking risks, but good businessmen take calculated risks.
What if, you are just in the learning curve and you got caught up in the middle of a real estate bust? Do you give up? Do you sell at a loss, curse yourself from buying that property in the first place and swear never to enter into real estate investment anymore? Of course not! Remember to think like a businessman. Learn to accept the reality, but also determine how to adapt to the situation. It does not mean that you will always make a profit, but you can minimize your losses. Eventually during the normal course of business, you will recover your losses and still end up in the positive side.
Here are some common scenarios during a "bust period or a real estate bubble":
- One of the classic things that happens during a bust period is negative equity. (See my previous post for the definition of negative equity.) Don’t panic! It only means you have a negative equity at the current market situation. Hold on to your property. Now is not the best time to sell. Instead, concentrate on paying your loan as much as you can. Improve your property. Think of it as a preparation period for the future boom. Enjoy your property instead of dwelling on the thought that you have a negative equity. Remember the "real estate cycle", it won’t stay that way forever. If your finances are really tight, consider renting out your property (or even sections of it only such as a room). You can downsize to a smaller property with cheaper rent.
- Another common situation during the bust period is a mortgagee sale or foreclosure by the bank. Don’t despair, face and accept the reality! However, don’t let your efforts and emotions go down the drain. Remember to think like a businessman and minimize your losses. Improve your property with whatever resources you have left. It doesn’t have to be a costly improvement; cleaning the premises, fixing the garden, doing some minor repairs and having a fresh coat of paint (if your finances allow) could increase the market value of your property, thus minimizing your losses. Instead of losing faith, be proactive and salvage whatever you can, not only from your property but from yourself as well. You need to pick up the pieces and move on to your next deal. Don’t let this event pull you down. Think of it as an expensive exercise that you need to experience, to learn something valuable. Integrate the lessons learned in your plans for the future. I’m sure next time, you will not only do well, but there is a big chance for you to recover your losses from this transaction. You may have chosen a more difficult path but you still achieved success in the end.
Just take a look at Donald Trump or maybe a more ordinary person like me.
Here are further examples of real estate businesses, which have learned to accept the cycle, adapt and rise above the situation and come out as a winner.
Jade Jagger’s innovative condo design
"When the developers examined the neighborhood (Chelsea) and the market, they identified a need for smaller, lower-priced apartments. They decided that the branding should be hip, young and causal. Jade Jagger was all those things."
The building is due to open this summer but is already 70% sold! Other developers are faced with unsold inventories but not this one. They have learned to adapt, identified a need in the market and structured their development on how to meet those needs.
There are many other developments sorrounding this property in various stages of completion. However, this development was able to stand out from the pack and create its own market niche. It prides itself as a "Wall Street Armani". " We knew it would attract a primarily male clientele…and Armani’s very masculine palette was a good match." This development is already 70% sold.
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POSTED IN: Educational Tools, Real Life Stories, Road to Profits, Selling a Property
1 opinion for Did you get caught in the middle of a real estate bust?
propertycrossroads.com - Set your Emotions Straight! - The First Step to Real Estate Success
Feb 16, 2007 at 9:46 am
[...] The outlook is not very good for most people, at the prevailing real estate climate, in most countries. In my previous article, I discussed about negative equity and foreclosures as the two most common scenarios you dont want to encounter in real estate. It is a painful hit to anyone’s emotions to be in this situation. However, if your emotional foundation is strong then you can easily recover and move on. [...]
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