I bought way too high; now what?

What to do with that expensive cabin that I bought a year ago that isn't cash-flowing today?

The balloon has popped.  Well, maybe not popped.  But air is coming out pretty fast.  Borrowing costs have doubled in the last year, the economy is slowing, vacations are fewer, and lots of homes have been built.  Many of them quite fancy homes.  I could put my home on the market, but who is going to pay even close to what I paid, particularly with interest rates double!  

What to do?   

Just like in Alcohol Anonymous, "acceptance" is the essential first step.  Admitting that we maybe made an unwise purchase.  It's ok.  We have all done it.  

Next, we have to figure out if we are willing to gut it out and wait for brighter days - which will certainly come - or do we cut bait and move on?  Unless you made an incredibly awful deal in hindsight, your best course of action is to ride it out.

How many of us are funding our 401K at work to the tune of $1000 a month?  What sort of income are we currently getting off of that?  Zero.  We are investing in hopes of having something substantial in the future.  How about we transfer some of that logic to the vacation home we just paid way too much for?  

If we are short $2,000 a month but can afford it, why not just keep paying it?  By doing so, we are really just paying ourselves, as the loan is decreasing each month.  Vacationers are still paying off the bulk of the asset.

In 2005, I bought a cabin at the very heigh of the market back then, just before the financial crisis.  I was negative cash flow from the start.  And in 2009 and 10, that property lost HALF of its market value.  Ouch! Yet I still kept renting it, paying it down, and in 2011, it was finally cash flowing.  Fast forward to today, the property has now been fully paid off by vacationers and has an income of over $50,000 per year.  

So yes, those early years were painful, but we need to take a 401K approach to our real estate investing.  The crock pot approach.  Take your lumps, let it simmer a while, and you will eventually have something tasty to enjoy.