Many small-business owners also own real estate. This can be anything from their own home, investment properties and for many the building they business out of.
Here are the numbers:
- 92% of business owners own some form of real estate
- 89% own their own homes (not outright. They have a mortgage on the property they live in)
- 20% own the building their business operates out of
- 35% own real estate investment properties
When real estate cratered the bad mortgages remained. Now many business owners are massively underwater on their real estate holdings.
This is cramping their ability to leverage those properties for cash to funnel into business operations.
More than that it’s taking cash out of their operations simply to keep up with the debt payments.
Some of these bad debts must be cleared out and possibly let go. For small businesses to recover malinvestments have to be liquidated out of the market.
Here’s the full story from Huffington Post:
“What [entrepreneurs] have frequently done in the past is either mortgaged the proceeds and put that back into the business or collateralized it for business purposes,” Dennis said. “When the housing market fell apart … they took a huge nosedive. They lose an enormous amount of value, which means not only can’t they borrow on it, but there’s also a wealth effect, in that you tend not to spend when you don’t think you have anything to back it up.”
Truckenbrodt is feeling the pain. “Instead of investing in my business, I’m doing everything I can to pay debts down,” he said. “I used to leverage [these properties] for business, and now I’m just trying to get out of the grasp of these banks.”
Their grip has tightened as Truckenbrodt has tried to get a new mortgage on his home and keep up with his existing property loans through the recession. Though he previously owned his home outright, he wanted to take out a new mortgage but was turned down as a result of his company’s losses.
“They almost do a strip search to get a loan approved on a mortgage,” Truckenbrodt said. “It’s unbelievable the information they’re asking when you think just a few short years ago, people were walking in off the streets with virtually no verification of employment. It’s gone totally in the other direction.”
And the decline in real estate value and demand pose a huge burden. Truckenbrodt’s commercial buildings were assessed at half the amount he bought them for four years ago. “We have an empty building,” he said. “There are empty buildings everywhere.”
If you’ve been hurt by the real estate crash what options are you considering to get out of it?
If you haven’t been hurt what advice do you have for those who are hurting?
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