Time to stop the bleeding.... Bankruptcy

[Joel Fraser]

I’m in Las Vegas and I know first hand that we have another 15 - 20% to go before the bottom. I estimate that the bottom will hit in Q4 of 2009 or Q1 of 2010 after we go through another ~1 million foreclosures.People are going through some of these scenarios…1. Folks are walking away because of the huge losses in home values, and that when they do the math, they realize that its better for them long-term to stop the bleeding now.2. Mortgages are resetting into new terms that home owners are not able to sustain.3. Increasing unemployment / entry level recession causes reduced spending —> downward spiral into deeper recession, more unemployment4. Reduced access to credit means defaults go up as people can’t use revolving credit to juggle their financial problems.I’m about to file a personal chapter 7 bankruptcy for 1.2 million…. this will be the first month that I have ever been deliquent in my 12 year credit history… I have a FICO of 774 at the moment.At age 30, it’s hard to swallow that I was so careless / greedy when it came to purchasing real estate. Diversification would have saved me. Luckly I’m young enough to recover from this, i’m single and no kids… small business owner. I have learned a very important financial lesson about too much of a good thing, isn’t a good thing.Here are my details…1 rental home purchased with Interest only loan for $360,000 (foreclosure sold for $199,500 next door)1 primary home purchase with Interest only loan for $590,000 (foreclosure sold for $309,000 1 block away)Total real estate purchases = $950,000Total real estate losses = $441,500= 46% decrease in real estate investmentI’m paying $6,200/mo in Interest only loan payments for a total of … (-$1550/mo rental)$ 74,400 / year OR$372,000 / over the next 5 yearsOver the next 7 - 10 years the home values will not come back to orignal purchase price levels. At some point, the home builders who have purchased so much land will continue the track homes that they have barely started. When the market picks back up, homeowners will be competing against builder specials and upgrades so plan on keeping your home for a real long time. Carefully review your own situtation and determine what is the “best business decision” for you long term.God Bless the USA, a country that will allow me to recover from this huge mistake to start over again.