In it, I was explaining something no one else is really writing
about.... how taking a loss can be a good thing.

Saying this makes me sound crazy! No one wants to take a loss on their
property, right?

There was a time when I took a loss on a house that I am very thankful
for.

The first house I ever bought back in 1996 I thank God every day I
took a loss on when I did.

At the time, the house was all we could afford, and at the time it was
also in a decent location. I paid $52,000 for it as a college student
with very little income. I admit that I refinanced the hell out of it
like many of us do before we learn the ropes of what's a good
decision. Those refinances helped me to overimprove the house (shame
on me I do that with every house I live in :-), pay for extra expenses
when my daughter was born, buy a car, switch jobs, get out of credit
card debt, etc.

I rented it out for a while but like all of us who are landlords know
NEVER rent a house you are emotionally attached to (a house you used
to live in) because it will bother you even more when the tenant
destroys it. I fixed it up again to sell and by the time all was said
and done I ended up losing about $20K on the house.

Boy was I lucky. That house today would bring about $35K in pristine
condition because the neighborhood values have dropped so much. When I
sold it I got $85K for it which was a very fair price at the time,
amazingly only about 5 years ago.

But "losing" that money was worth it. You see, I really didn't lose
that much. I had taken the equity out and spent it on other things,
and even though I don't recommend everyone do that it helped me in
times when I really needed the money. The trick is eventually I was
earning enough to pay up.

The client who I was talking with is a little more disciplined than I
was. He owes more than he can get simply because the economy has gone
down.

But he can take a loss and be glad too and here's how I explained
it....

"You owe about $81K

Let's say your house sells for $75K in today's market With fees and
taxes that have to be paid and commission and all that jazz let's say
selling the house costs $86,000 for example. So you're short $11K
(this is just an example).

You would have to bring $11K to closing as a loss.

That part sucks.

Here's the good part though.

Everyone else is selling for less too, especially the banks. So you
make up your loss when you buy for less. It's kind of a wash. Most
people can't understand this part... YOU lose but THEY lose too. It
evens out.

Say you buy a house for $40K that needs work. You get a FHA 203K rehab
loan for 3.5 percent down. You fix it up nice and you have maybe
$55,000 in it and then you have a house you really like, the way you
want it, that doesn't need any work.

Your payment is at the low interest rates of today, probably less than
what you're paying now (under 6 percent usually, sometimes closer to
5).

So say your current loan is at 7 percent (I don't know for sure this
is just an example) and you're paying $552 a month principal and
interest. The new loan, assuming a rate of 5.7 percent at 55K would be
$319.22 per month principal and interest. You save every month plus
you have a house that doesn't need any work at that point and it's the
house you want that fits your needs.

If you keep your current house as a rental you're looking at a break
even likely every month rather than a profit, which makes that plan
not so appealing.

The downfall is you no longer have the money you lost on the first
house.

If you don't sell your current house, then when the market turns
around if you're in the house you're in now you can clear the loan
without a loss and buy another house that's pretty much the same for
the same price or buy another one and invest more.

On the other hand, If you're in the fixed up house you can sell it and
likely make some money, or you just have really low payments and you
have a house you like and you don't have to worry so much every month.
You'll get your $11K loss back and then some if you resell the new
house in a good market."

The most important thing if you sell and buy the house you want NOW,
you're living the house you want NOW, rather than waiting for years to
get there. Make sense?