What most people had feared all along has finally come, yes, the bubble has burst! The real estate bubble, that is. We can see it in the news, in Market Watch, in our neighborhoods. Homes that had been on the market for more than a year, some almost two years like the one in my neighborhood. Homes going into foreclosures, we haven’t seen it this bad in years.
I live in the San Francisco bay area where the prices of median have skyrocketed in years, a Mecca for real estate investors who would like to buy low and flip homes for a profit. In the past year, I have seen the same flippers flipping’ out because they have not been making enough money to recoup their investments. It is quite disheartening to see that even well maintained homes, renovated to perfection, sit in the market for months only to be sold at a lower price- much lower than what the sellers would have wanted to sell them for. Some opt for selling even at a loss, just to avoid further paying the carrying costs. Those who make money selling are those homeowners who have owned their homes for a long time and no matter how much they go down in their asking price they know that they are still making a profit. Those who are losing are those recent owners or those who bought a couple of years ago, with an adjustable rate, who cannot pay new adjusted rate. They tend to panic and are forced to reduce their asking price just to sell their properties, much to the dismay of the neighbors waiting for the prices to go up again so that they can possibly refinance.
So what should you do if you are selling your home and it doesn’t sell? You’ve done everything, renovate, hired the best realtor, reduced your price, but still your home is not selling. Here are some tips to get by while you wait for the real estate market to heat up again:
Put your house up for rent
One thing good about the San Francisco bay area, there are no shortage of renters. If you are already in the process of moving out, why not advertise it for rent for the amount that can cover all carrying costs (mortgage, property tax, insurance, etc.). Some of you may be wondering where you would live. Some people opt to rent a smaller apartment until the market gets better. A $1,500 2-bedroom simple apartment in an apartment complex is a lot lower than paying a $3,500 mortgage to keep your 4-bedroom home. A lot of families who cannot afford to buy because they cannot come up with that huge down payment but would opt to rent homes rather than the regular apartments because they like the space, having a backyard, and the privacy. Post your ad on www.craigslist.org it is free and a lot of people who are looking go to this site looking for properties for rent. Sign up a contract for one to two years until the market gets better that you can refinance or afford your mortgage again.
Rent out rooms
If you own a home with “in-law” or separate guest units, try to rent out those rooms. You can still live in your home and enjoy your privacy while getting some help on your monthly mortgage coming from their rent. A lot of homeowners do this in the bay area. They have separate entrances, mostly next to the garage. It is a win-win situation for both you and the prospective tenants who are looking for a more affordable rent. You can rent it out to couples whoa re starting out, single professionals, or college students. We know some people who ended up liking this extra income that even after they can afford to pay their mortgage on their own, they kept renting the rooms out keeping the extra money in their savings account. Especially if those extra rooms do not get used might as well make money out of them.
Try to refinance your home if possible and talk to your mortgage lender to work out a plan for you to be able to afford your mortgage. Some lender would be willing, so long as you have excellent credit. Keep in mind, the mortgage lenders do not want your home, they are in the business of lending not selling homes. So they would be more than willing to help out reasonably.
Get a second mortgage
If you can qualify go ahead and get that second mortgage to help with your finances. Hopefully your home has enough equity you can tap into.
Borrow from your 401K
If you have been saving for retirement and you have a 401K, you can borrow this money to be able to help you out until the economy gets better. A lot of people would not want to tap into this savings, but rather than put a big blemish on your credit by defaulting in your mortgage payment, and losing your down payment if you go into foreclosure, the 401K money can help you without paying banks huge interest rates. Borrowing from your 401K is very helpful and when you pay it back you pay yourself including the small interest goes back to you. This is a lot better than borrowing from banks at higher interest rates.
Borrow from your family and friends
If you do not have 401K, or do not have enough on your 401K, you can also borrow from your family and friends who would be willing to help you out. They know that you are in the predicament that you did not intentionally get into so they will understand. Your family would be more than willing to help you out. Just offer to pay them monthly to make good on your credit. Every time you get extra money to spare, pay them.
Get a second income
If you are going through some hard times, it may be a good idea to get yourself a second income. In two income families, maybe a third job is in order. Get a part time job that can help with the bills.
Tighten your belts
Try to cut down on expenses while you battle the storm. Lessen your dining out, movie dates, or buying stuff that are not of necessity. Save on your energy and water bill as much as you can. Every penny counts, believe it or not.
Hopefully these tips can help you out while the real estate market is not moving the way it should. Don’t worry, it will pick up again, but until then, ride it out as much you can and hold onto your biggest investment. It will give you the returns that you expect someday, it is coming sooner than you think you just need to weather this storm without panicking…and just like any storm that has passed the skies will start clearing up and the sun will shine through. Good luck!