Is It Safe To Buy Residential Real Estate?

I recently visited a friend in Phoenix who had fallen on hard times. After a divorce and losing his high-income sales job, he needed to sell his home. As you may have read, the temperature of the real estate market in the Valley of the Sun has more in common with Nome than the torrid Sonoran desert.

My friend will likely do a short sale, meaning that he'll have to get rid of his home for around $300,000. He paid about $600,000 at the top of the bubble. The difference between the mortgage value and the closing price will perversely be considered income by the IRS, and he'll have to pay taxes on the shortfall. In that case, he sighs, he'll have to file bankruptcy.

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