Case Study: Shall we brainstorm?

**Treble888** · 04-13-2009, 03:12 AM

Hi Guys
Can we please brainstorm a scenario?

The scenario is, a person owns a few properties. He thought the interest rate would further go up above 10% and got them locked at 8.87% for 5 years. The properties were about $1500 shortfall per month, however, he estimated wrong about the market and expected to get some capital gain. In the meanwhile, his wife was expecting and left her job, and the man was barely surviving.
Now, the interest rates have gone down to 5.5%. Also the market started moving and there are some buyers in the market as well. It seems that there is a good possibility to sale the properties at about 20 t0 30k each, and also a good possibility to refinance them. If he refinances, the properties will give a positive cash flow of $1800 pm and he expects to have 0.5M dollar in equity in five to eight years time. The tenants, as usual creating some funny troubles.
The question is, what should be the man

**minnesota-mls** · 04-13-2009, 11:42 AM

I personally have always been a buy and hold real estate investor. Here in Minnesota, with so many homes still for sale on the MLS, it is not a great time to sell. Lots of competition is forcing many sellers to sell at prices below where they wanted to be.

I guess in this case study, I would ask what the person's ultimate goal is? It sounds like tenants are causing some issues, but a property management company can always be brought in to take care of those calls, etc.

Over the long term, here in MN, real estate has slowly but surely gone up. It gives an investor tax benfits each year, there are some cash flow opportunities, and the opportunity to build long term equity.

I hope this helps!

**Treble888** · 04-18-2009, 05:41 AM

Hi Minnesota-MLS
Thanks a lot for your input and I agree with you. How correctly you used the phrase "slowly and surely".

I also believe the the power of buy and hold. Regarding the current depression, do you find the similarity with the "chicken little and sky is falling" cartoon?

**frobn** · 04-18-2009, 11:43 AM

Location (3x). If the properties are located in an established "walkable" community they have a better chance of increasing in value, if not there is no hope for them in the intermediate and the long term.

**jamesww** · 04-20-2009, 12:46 AM

Just listening to opinions on this matter will not give you the answer for your course. You must do the appropriate ROI and IRR calculations. Then look at the risk to reward ratio for your troubled investor. In the end you will likely see he should cut at least one property loose.