Title: The Hidden Dangers of Underwater Fix & Flip Projects: The Erosive Power of Time

There's an escalating situation within the fix & flip domain that we feel needs to be brought to people's attention - underwater projects.

Underwater projects occur when the outstanding loan value surpasses the current market value of the property. This can be due to various factors like unforeseen repair costs, unexpected market downturns, or inaccurately assessed ARVs (After Repair Value).

A misconception observed among many borrowers is the belief that time is their ally in these circumstances. However, time could be your biggest adversary. Default interest and additional holding costs don't take a break - they relentlessly accumulate, pushing the project further into the red.

To illustrate the severity, let's consider a case study. A $300,000 loan was acquired with an 18% default interest. Fast forward a year later, due to time and accumulated interest, the loan balance has now soared to over $350,000 - almost a 20% increase. The borrower, still clinging to the hope of salvaging the project, fails to acknowledge the harsh reality: their profit and equity have evaporated.

The implications can be far-reaching, especially if personal guarantees are involved. The financial fallout can bleed into personal assets and ruin credit.

So, how can one navigate through such a predicament? Our experience suggests that selling sooner is often more advantageous. But borrowers want to fight and in most cases they are fighting a losing battle that they are cutting off their nose to spite their face.