Josy
“Dear Steve,
I am in the Real Estate Business. We are also a General Contractor. We currently have close to 4 million dollars in property, but have 1 million dollars in debt. But with the curent economy situation, we have found ourselves in a rut. With little money to build and lots of property we know that if we find the right solution, we can take care of our situation.
Our credit has gone down the drain and we are now on the verge of losing a lot of the properties we own. There’s only two of us, and we’re running short of ideas. Sometimes we just want to throw in the towel. But we’ve come too far to throw it all away. We are constantly being hounded by debt collectors and are behind on car payment as well as mortgage payments. The banks don’t seem to care about the 4 million dollars in assets.
Any ideas?
Josy”
Dear Josy,
I’m not sure if I’m the right guy to ask. I went bankrupt from my real estate development business. Ironically, I learned more from my bankruptcy than I ever did in all my years in college.
If we separate out the emotional component and look at your situation purely from a business point of view I think there are several critical areas to look at before you can decide what path is right for you.
What concerns me the most from your story is that in your desire to save the business you have allowed car payments and mortgage payments to be missed. Those payments must be brought current and kept current. You need to keep a roof over your head and a car for transportation. If the business can’t survive if you make those car and mortgage payments I think you got your answer that the business must go.
The banks don’t give a damn about how great of a job you have done they want to see a reasonable plan on how you are going to return their money to them. Your best course of action is to put together a written business plan on what needs to happen to save the business and see if you can negotiate a solution with the bank from that as a starting point.
The bank can modify your loans and may if they see a logical and reasonable plan where they can recover their money if they give you some slack. If you can’t present a logical solution then they may not give you any breathing room or more time because why prolong the inevitable. If that’s the case, it is better to know that now than to drag yourself further down a black hole.
I’m not sure I care about the fact that you value your assets at $4 million because assets do not have value based on what you paid for it or what it might have been worth. Value comes from that amount that the buyer and seller agree on at the time of sale and I’m not sure what the written down value of your properties would be if you could find a buyer today. Probably not the full $4 million dollars. Not in this down real estate market.
It’s not too late to reinvent yourself and consider contractor work that you may not have done before. For example, small builders are not busy right now and a number of them have switched their focus to home remodeling rather than building. What they are finding is that people are more interested in fixing up their current properties than buying land and building from scratch.
It might just be that there is no reasonable expectation that you will be able to hold on to the properties in these lean times. If you had loads of cash in the bank to carry you through, that’s a different story. But without any buyers lining up, your own home potentially facing foreclosure, your car on the verge of being repoed and the bank unwilling to bend, you might just have to face the fact that you gave it a good fight but the battle is over.
In that case bankruptcy might wind up being the most logical solution to give you an opportunity to get a fresh start by discharging the debts you can’t pay. Sure bankruptcy is emotionally draining and you have to start over again but it can give you a chance to begin again instead of just being on the receiving end of all that is going on now.
I went bankrupt, it sucked, but in the long run I did have an opportunity to move forward with my life, my new life. I no longer did real estate development, for me that experience was too painful, but I went on to do other things and have a different future.
Oh and let me not forget that if your public identity to the world has been as a builder, developer and contractor, one of the hardest things you can do is to fold the business. Everyone will know and it is a public admission of failure. It is but, your business is not what defines who you are unless you let it. Don’t make the mistake of trying to hold on too long and lose everything just to maintain an image that you can no longer afford due to circumstances beyond your control.
Of course, you can always keep putting one foot in front of the other and just wait until stuff is taken away from you by the banks and lenders. When that starts happening then that will be a big clue that it’s over.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Do you have a question you'd like to ask me for free? Go ahead and click here.
P.S. First item to address though, get those car and home mortgage payments current.
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