Hi, I'm Mark Kohler here with the tax and legal tip maybe more
Business slash legal tip I want to talk about what to do if you have a problem property
And this is a phone call that we get in our office all the time. You know hey, I've got this property
It's under water. It's not cash flowing. What do I do? Well I've got a special matrix. You're gonna love okay now
I call this the problem property matrix in any good matrix has four quadrants, so let's bust it out here
We've got cash flow and then we have no cash flow oh
Not a good thing right, but it's gonna happen, then we've got equity in
This these two cones and then no equity
For different scenarios that could occur now, let's talk about the ideal situation
You've got cash flow and you have equity woohoo count yourself lucky, right yay
You've got cash flow so we're happy there. You've got cash flow and you've got equity
This obviously is not the the portion of the matrix. That's a problem, so let's talk about
No cash flow but equity now
This is an important option because I have a lot of clients that say mark my property. It's not making any money
I'm gonna get rid of it, and I go whoa you know how much equity is in the property. Oh well
It's worth a hundred and fifty grand and my mortgage is a hundred grand, but when I add everything up
I'm still negative cash flow two or three hundred dollars a month
Maybe even five hundred dollars a month and so they go it's a loser, and I say well how much of that?
Negative cash flow is going towards the mortgage payment
What is the outlook for potential growth in that area has it?
Consistently gone up is it a high risk up and down area
Could you lose your equity tomorrow?
See there's lots of questions here
And so this is one where I tell clients you might want to keep it based on how much is going to the mortgage balance
Because I really want to see if you're building equity moving forward
And what is the equity lookout or xre equity outlook because we want to see what could the future hold?
And we may want to keep a property even if it's negative cash flow because we're building equity moving forward
It's like a savings account that you're gonna cash in
Now the other option here that tells us hey we may want to keep this is it's got cash flow
But no effort so in this situation again
It's a question mark what should we do it doesn't mean automatically we get rid of it. This is the classic property?
Where it may be a mortgage of a hundred and fifty thousand, but it's worth a hundred
I mean you're
underwater and there's in and you're in fact scared to sell it because you might have to pay some of the mortgage back and
That's a really tragic scenario, but if it's cash flowing why not keep it. You don't what I mean
I mean this this could be one where you're making two or three hundred bucks a month on cash flow and
Even though you don't see a really near end incite it might be ten years
Before you get your equity back to to you know above water
I you know that's one right to a client's hey keep it. You know is the cash flow
sustainable, and if it is
I'm I'm gonna tell you probably
keep this property for the
foreseeable future and then maybe try to get out of it when
There's a bump in the market or something like that so this is another one where you're gonna want to keep it. Then we have
the perfect storm no cash flow
No equity. We've got to get rid of this property, and it's ironic. I mean it's not ironic
It's shocking
How many clients I see that have held on to properties that are in this quadrant? I mean if you're in here
You've got to start looking at a short sale at deed in lieu of foreclosure
Doing a lease option to get some tenant to hopefully buy it as soon as possible
We've got to get rid of this property because it's a drain on your overall network
And it's a drain on your net income
So in summary not every property that seems to be a problem is really a problem
There may be some reasons to keep that property others of you may be sitting on a problem hoping that's gonna change
And it's not and it's time to rip the cord and get out of there so
Consider these issues very carefully at our office
We can be of assistance our lawyers and accounts trying to help you make the right
Decision so that you're building your wealth and not going underwater
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