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Letter Re: How to Handle Real Estate Holdings in a Economic Depression

Sir:
If the global economy melts down and we experience a "greater depression" or worse. What is the best strategy for real estate that is already owned? I own a primary home and two rental properties in central Virginia but if the SHTF, I'm going to retreat along with numerous family members, to our farm about 25-30 miles from the nearest city. (It has hundreds of acres for growing, and has ample water, etc.)

I don't have substantial equity in any of my three houses and all mortgages 30 year fixed through Bank of America. Is it worth continuing to try to pay on one or more of these? If the county is on the skids for several years and job loss is substantial, do you think there would be bank/government lack of mortgage payment forgiveness and allow people to resume payments if or when things returned to relative normalcy?

I'm pretty certain that I would leave remaining credit card debt unpaid. If the SHTF, a poor credit score would be least of my worries. Do you agree?

Any other thoughts on this topic would be greatly appreciated. I may be a little naive is assuming the USA will return to a state of normalcy but it is a very real part of my planning process. Or is there basically no chance of a return to normalcy after such an event? Thanks in advance, - Joe

JWR Replies: Anyone that has vacation, rental, or "investment" properties with mortgages attached should beware! A negative cash flow will be disastrous in an era of widespread corporate layoffs. Face facts: It is very likely that a recession or even a depression is just around the corner, and the collapse of real estate prices is likely to continue for several years. If you can break even or get out with a small loss, then I urgently recommend that you start selling property and don't stop until until you have a solid positive cash flow. If you try to juggle too many mortgages, you may lose everything.

As I've said before, a total wipeout is unlikely. Far more likely is a straightforward Depression, perhaps inflationary, perhaps deflationary, but in any case nasty. Banks and civil governments will still function in all but an absolute worst case situation. That means that you will still have to meet your obligations for mortgage and property tax payments. Be ready for such times by getting out of debt!

If you are completely "upside down" in one or more mortgage, then think twice about just walking away, and mailing your banker "jingle mail." Unless you are self-employed, I recommend that you do so only as a last resort. Keep in mind that credit scores are now part of the background checks that are now standard practice in the hiring process for many corporations. It would add insult to injury to ruin your chance of getting re-hired by wrecking your credit rating.

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