Should You Sell Your House If You Are Underwater?
Doing Well
I once owned property that was "underwater". I owed more on the property than it was worth at the time. I made the mistake of selling the property at a loss. I had to pay off part of the mortgage anyway because the buyer's mortgage didn't cover all that I owed.
I didn't need to sell that property. I was perfectly happy with it. But I listened to the financial gurus on the TV who said you should sell a property that wasn't worth what you were paying for it.
Years later when I drive by that property I kick myself. Now it's worth half again what I sold it for. My mortgage wasn't that high, so if I had not sold I'd owe less today than I did then and I would be "above water".
That is what investment experts mean when they tell people not to "panic sell" out of their investments. If you own shares in a mutual fund and the market takes a dive, your instinct will be to sell your shares to protect yourself against "further losses". But the truth is that you only experience losses when you sell property or commodities below what you're paying for them.
If you cannot afford to hold on to your property or shares, should you even buy them? Buying things during the good times is one thing. Buying things when you're already in debt, struggling to pay your bills on time, and looking for a way out is another thing.
A few years ago I promised myself after paying off that mortgate I would never sell anything again until I could make a profit. And I have held to that promise every time I've watched my investments lose share prices. I've taken a few stocks to zero dollars but I don't regret investing in them and holding on to them one bit. I learned valuable lessons about what stocks NOT to buy from those experiences. That was money well spent. I didn't lose it.
As I look at the housing market today, I wish I had held on to my old property even more. I would have a stable home and I wouldn't have to worry about where to live. Plus, if I needed money, I would have equity to draw upon in an emergency.
Patience is the most important skill you should learn in managing money. I don't mean learn to accept and live with having nothing. I mean that, whatever investment you make, you need to be patient with it. It's like getting a puppy. You need to train that pup and shower it with love and be patient with it. One day it will be a full member of your family.
Common sense is another important skill. Common sense tells you to buy low and sell high. But most people don't do that. As soon as things start to look bad, we panic sell our assets to make sure we have money in the bank. Common sense says you should plan ahead for the bad times. So why don't we?
Most people don't plan ahead for bad times because they don't want to think about them. That goes against the grain of common sense. And whether you're patient or not, sooner or later you'll run into a financial emergency. The day is coming whether you like it or not.
When it comes to real estate, history teaches us that most property increases in value over time. So if you own some land or a house during the next recession, don't sell it because you're under water. The loan value decreases over time as you pay it off. One day the property value will increase again.
And when that day comes, you'll be glad you held on to the property and didn't sell in a panic just because someone on TV said that was what you should do.