Sunday, September 4, 2011

Time for Mortgage reform to help small business

Why is is that the large holders of real estate or owners of large corporations get to restructure often with little repercussions?  It is seen as a normal part of business during tough times but no one seems to think this option should be available for small business owners.  The small business owner is seen as irresponsible, over extended or as an over spending manager that can not follow a budget.  This is especially true for small businesses that bought and held real estate for rental property.   They system has come to punish those who were responsible, did the right thing and invested wisely.  There is no way any person with half a brain could fault an owner who has struggled after a 50 to 60 % drop in housing prices or a heavy dose of vacancies in their strip malls.

Think about it for a minute.  I know this is hard for you people that are just reactionaries and have the asinine notion that just because people were in real estate that it meant they were over leveraged, bought with no money down, or were just trying to get rich quick.

A property business is valued based on its assets.  The value of the property is what gives the owner the ability to get financing to continue to grow their business.  Even if all the properties cash flow, it takes years to build up reserves if you are making 100 or 200 a month net profit.  One Air condition replacement can be 5000 which takes out 4 to 5 years of those reserves.  More important than the value of the asset is the amount equity in the property.  If you have 50% equity in the business you would be doing very well. But think of the real estate values dropping 50% and still declining in certain areas.  Your 50% equity would now be zero and declining.  With no re structuring option for the business and no rebound in real estate prices seen on the horizon, how would a company with 0 $ in net assets or even less survive.  If  there was a chance to restructure as the larger companies do it would be easy for the landlords to survive and make a living.  As it stands now, many people made their living as landlords have had to close up shop.  Everyone is saying how great rental prices should be and how full apartments will be but it is not happening as people assume.  People are living with family more and more and combining homes rather than over loading the vacancies and driving up rent prices.

Rent has actually gone down in some areas of the country and

It does seem to make sense that bankers should be more personally accountable for their practices.  There have been plenty of people that have gotten crushed lately over the drop in housing prices because they had to put their personal guarantee on loans even if it was for business purposes. Landlords with small apartment buildings or single family homes for rent often do not have the luxury of getting loans in their business name without a personal guarantee. I am sure thousands of smaller landlords (less than 50 units) could have  restructured and filed for bankruptcy (like the Donald) and have kept their assets without getting wiped out.  However, as it stands now if someone had 10 mortgages it is likely they are at least 100,000 under water and more likely about 400,000 depending on price of property and original down payment, length of ownership etc.....There is such a double standard here for the smaller business owner and the very large company. There has been devastation among those people who had put away money in to real estate for retirement and cash flow purposes.  They have been wiped out with no safety net, while we see the donald in his billion dollar jet after restructuring more than once.

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