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Collecting Shells Before a Tsunami

September 15th, 2009 by Dawn Rickabaugh

TsunamiI’ve never witnessed a tsunami first hand, but I’ve been told that before the devastating wall of water devours everything in it’s path, like a hungry sea beast charging in for a glorious feast, there are a few moments in time that seem quite magical to the innocent and unsuspecting.

The water line temporarily recedes, making it excruciatingly tempting to prance delightedly along the shoreline collecting shells, fish and other treasures that have suddenly become accessible.

And apparently, it can be such a fascinating and engaging activity that you might fail to notice the darkness forming on the horizon as you fill your goodie bag to overflowing.  By the time you do . . . well, it’s usually too late.

I recently read the following from John Mulkey (www.thehousingguru.com):

“If the economy is improving, do we really have millions more foreclosures coming? According to the U.S. Treasury, the answer is yes. In written testimony to Congress, Assistant Secretary for Financial Institutions, Michael Barr said that, regardless of the success of mortgage modification efforts, we should still expect millions more foreclosures.

Mr. Barr’s testimony is certainly not welcome news for those anticipating a significant recovery in the housing market. In fact, it is an indication that significant recovery is still years away.

And there are other factors that confirm the fragile state of both the economy and the housing market. Recent reports have indicated that there are almost 3 million active, interest-only loans with a total value of almost $1 trillion, with loans of about $500 billion set to reset within the next 30 months. Then we have a large group of Option Arm mortgages set to recast during the next 2 years. These loans have a combined value of more than $125 billion.

The rising number of bankruptcies, up 36% in the second quarter over last year, with wealthy families filing at double that rate, creates a ‘perfect storm’ of disastrous consequences for the housing market. With the likely prospect of millions more foreclosures coming, home prices and home sales will remain depressed until the market can achieve stabilization. And achieving stabilization will be a slow and painful process.”

Of course, certain areas of the country will be hit harder than others.  Even here in California, (one of the hardest hit together with Florida and Arizona) there are pockets that are devastated, and pockets that seem almost immune.

And I don’t especially care for being a Prophetess of Doom . . . my brand is ‘Note Queen,’ which is rather harmless and mostly silly, really.

It’s just that I feel strongly about helping people triage (can you tell I used to be an RN?) their financial lives carefully.  The real estate market may be fine where you are, and it may get even tougher.  And if it does, how will your quality of life be affected?

If you’re holding on for ‘just a couple more years’ until the market ‘recovers,’ then stop it.  Sell now, especially if you’ve got negative cash flow and your net worth is less than $5 million.

If you’re happy owning your property for the next 12-20 years no matter what happens, then fine.  Hold out for your price and terms.  But if your emotional and financial well-being depends upon the successful sale of a piece of property in the next 10 years, then quit dawdling.

And if deferring capital gains is important to you, download your free copy of a report I created entitled “How to Avoid Paying One Red Cent to Uncle Sam When You Sell Your Property” at www.AvoidCapitalGains.net.

There are a lot of investors out there picking up pre-foreclosures and REOs like sea shells before a tsunami.  Prices seem good now, but they could get even better, despite all the government’s shenanigans in the ‘free’ market.


Always consult with your CPA, tax attorney and/or financial advisor before selling property or paper.

Dawn Rickabaugh is a RE broker with expertise in seller financing and RE notes (trust deeds).  www.NoteQueen.com  626.641.3931

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