The Ten Percent Solution

 

just now able to recover what they paid for their homes. In many cases, their proceeds from a property sale didn't even cover the mortgage balance. They had negative savings! That's a frightening concept.

"With real estate, it's a matter of timing. There's no dollar cost averaging here. No safety net. So, you'd better be right when you buy that property. The one big thing that investors do have in their favor, though, is real estate's relatively consistent record of rising prices. It seldom collapses. In fact, in some locales, it rarely falls at all, but. . . but..." Roy wagged his finger.

"The only thing worse than a bad investment is a bad investment made with borrowed money. Dave, can you see yourself telling your wife that you just lost twenty thousand dollars, twenty thousand borrowed dollars?"

"She'd kill me," I gulped, knowing the prediction was accurate.

"Kill yourself first," Tom suggested helpfully.

"The timing of the purchase isn't the only problem. Interest rates can turn against you, too. What if you have a variable-rate mortgage and interest rates hit fifteen percent? Then all of a sudden your mortgage payment skyrockets to around nine hundred dollars. The heartbreak of negative cash flow results. Say this happens at a time when your business is suffering, too, Cathy. What do you do?"

"Sell."

"Sounds good, but with rates that high, very few people can afford to buy. Demand is way down, and a lot of people are trying to sell. You're not the only one hurt by the higher financing costs! End result: Your property value is down. If you have no choice but to sell, you'll have to sell at a loss," he ended ominously.