My 3 Best Strategies for Salvaging Losing Investments

[Don Konipol]

Fortunately, MOST of my 750 + real estate investments (over 50 years, syndicated, personal and both) have been winners, BUT I’ve also had some losers that looked like they would result in my “net worth” taking a hit. 

Most I was able to either eliminate the negative all together (and even turn into a gain), or at least greatly modify (decrease) the potential loss. 

Here are the methods used to accomplish turning a big loss into a small loss or even gain

1. Allow time to bail you out.  Hold the property thru the complete economic cycle, and profit from take fact that most real estate appreciates over time.  The strategy part of this is to always have a sufficient amount of liquid assets to be able to “carry” the subject property/investment thru periods of negative cash flow. 

2. Sell the property with a small down payment and seller financing.  Carefully selecting the buyer who has the best chance of success.  People will pay significantly more for a property that has financing “built in” to the sale, especially if conventional loan qualifying criteria is modified or eliminated. I have been successful charging 6 - 7 % interest, with a 20 year amortization and 5 - 7 year balloon. 

3. Reposition the property to an alternative use.  An example may be helpful.  We had a building which housed a music school and a daycare center as tenants, both of which went out of business during the pandemic.  We converted the building to a last mile warehouse, and after an operator completed one year of the lease exercised his option to buy us out at a significant profit to us. 

You may notice these strategies require (1) capital, (2) knowledge and (3) expertise.  Knowledge and expertise you can hire, capital you need to have as part of any investment strategy.  I rather own 50% of a property and have $100k in “reserve” than 100% of a property with 0 reserves.  ALWAYS protect your downside.  

Let me know what you think 

[G. Brian Davis]

I think your last point is the one that gets overlooked the most.

A lot of investors spend all their time figuring out how to buy the next property and very little time thinking about what happens if things don't go according to plan. I've seen plenty of deals survive because the owner had reserves and flexibility. I've also seen good properties become bad investments simply because there wasn't enough margin to weather a rough patch. Protecting the downside isn't exciting, but it's probably one of the biggest reasons investors stay in the game long enough to benefit from the upside.