One of our blog readers submitted the following question:
“I have a home that was appraised at $130,000 this month. However, I think it's worth at least $200,000. Would you agree to keep it until the market comes back up and try to sell then? My ex-husband will rent it from me until then. Thanks, Bev”
Well Bev, there are several things to consider:
First, you need to find out what the property is actually worth. What you think its worth may be completely different that what its really worth. Contact a one or two local realtors and ask them to provide you with some sold comparables (“comps”). They may even do a comparative market analysis (CMA) for you. This will give you a very good indication of today's market value.
Now, assuming the property is worth less than you owe on it – a situation that is all too common for many people – it is recommended that you hang on to the property until the market turns around in your area. However, if you are suffering from a negative cash-flow situation that you cannot handle, even with someone renting it from you, then you may want to sell it to cut your losses, or better yet, find yourself a long-term partner to help cover your negative cash-flow in exchange for a percentage of the property. Since there is no equity, your partner would be banking on the long term growth in equity as their return on investment here.
If you do have equity in the property, then your two options are to either sell it or keep it. Your decision here is a matter of personal preference. Do you sell it for some immediate profit or hang on to it for the long term growth in equity. again, you need to consider several factors like your local real estate market and personal cash flow situation.
I hope that was a little helpful. We look forward to more real estate investing questions.