Knowing when to Cut Your Losses in Real Estate

I wanted to share a true story that illustrates that sometimes, even though we have the best of intentions and well laid out plans, life can get in the way.  We sometimes need to step back and look at the big picture and be strong enough to cut our losses.  This story happens to be a real estate investment story.

 

Knowing when to cut your losses in real estate

 

Several years ago, I purchased a Long Island property that I thought was going to be a fantastic project (Why would I buy it if I didn’t?).  As usual, things started off a little slower than I hoped for.  The house was a long distance from me (first mistake) and my usual contractors didn’t want to go there.  While interviewing new local contractors was a pain, things were starting to come together.

 

Knowing when to cut your losses in real estateThe neighborhood was well established, and while this house was old and original, there were many high-end homes in the general vicinity.  That usually gives an investor a bit of a cushion.  Not in this case. Just as the architect and engineer were completing the plan, we were hit with Hurricane Sandy.

 

Every house in the neighborhood was damaged and every road into and out of the area was closed for over two weeks (and of course there was a gas shortage).  What was once considered a nice project was now my worst nightmare.

 

Hurricane Sandy Damage - Knowing when to cut your lossesWhen I was finally able reach the house, I found substantial exterior damage to the property.  Trees were down everywhere and the driveway had been lifted by a mess of roots.  These were not small trees either.  Some of them were 50-60 feet high before coming down.  When I pulled up in front, I could barely see the house.

 

This obviously changed the whole nature of the project.  My new contractors were in super high demand, as they now had work everywhere and had to prioritize. I went to the back of the line to get any work done.  Additionally, everything being done required permits from the town, and it was going to be months before they got caught up.

 

My insurance adjuster didn’t get to even look at the property for another two weeks after I finally got there.  Once he did, he told me that, in a sense, I was “luckier” than most in the neighborhood.  None of the trees had actually hit and/or damaged the house.  They were all over the property but not on the house.

 

Knowing the right time to cut your losses in real estateWhile this was good for the house, it wasn’t not good for my insurance claim.  They eventually told me (3-4 weeks after that) that my policy only covered damage to the house and not to the property surrounding the house.   Lovely.

 

So, now I had the additional cost of tree removal and resurfacing the large driveway.  And, this extra cost now fell on me alone.  Mind you, none of this was in the budget.  The thousands of dollars required to do this work pretty much blew out the possibility of securing a profitable return on my investment.

 

This confluence of events changed things as follows.  If I could find contractors to do the renovation on the property in a reasonable amount of time was now unknown.  The time frame required to get permits had quadrupled.  I had to spend thousands of dollars in unanticipated, unbudgeted landscaping work.  The overall market conditions had become uncertain (due to the storm and anticipated higher insurance premiums).  Who knew how this event would affect the real estate market in the near term.

 

So, I did the only thing that made any sense.  I cleaned up the property, replaced the driveway and put the house up for sale in as-is condition.  It took over a month to find a buyer, even at the aggressive price I was asking.  After all was said and done, I ended losing less than ten thousand dollars.

 

Even though I wound up owning the house for six months, and I lost money, I consider this to be a real lucky ending.  It could have been much worse.

 

It always pays to know when to cut your losses and move on.

 

If you are interested in learning more about the cash home buying process or are ready to talk to Mr. Witt today about selling your home for cash, please give Long Island Cash Home Buyer a call today at (516) 330-6940 or fill out the quick property evaluation form below. We look forward to working with you to sell your Long Island Home quicker than any other alternative!

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