Author Topic: Sell this house at all costs?  (Read 3386 times)

highwayskies

  • 5 O'Clock Shadow
  • *
  • Posts: 40
  • Age: 44
  • Location: CT
Sell this house at all costs?
« on: February 18, 2014, 12:53:57 PM »
The single family home my new wife and I live in was purchased by me in '06 for $200k ($182,600 still owed), and I'm told would sell now for $175-180ish (before closing costs).  My motivation to sell comes from the following:

 It costs $2000/mo, and even rented, can only earn $1600 tops.
 Mortgage is at 6.875% and  2nd mtg (yes, was 100% financed) is at 8.725% (and cannot be refi'd)
 My strong new allergy to debt thanks to this blog and other recent reading

Should I sell it, even taking the initial loss, to rid myself of the encumbrance (particularly of the interest)? 

I suppose as an alternative, I could just spend the next 18 months paying off the worse of the two mortgages so it became a ($100, just barely) positive-cash-flow rental.

Thanks for your insights!  We're moving in with Mom to seriously start eliminating this debt!

nereo

  • Senior Mustachian
  • ********
  • Posts: 15090
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Sell this house at all costs?
« Reply #1 on: February 18, 2014, 01:02:19 PM »
Yup - you've got a "hair on fire" emergency.
The 8.725% 2nd mortgage is a grave-digger, and the primary mortgage at 6.875 isn't much better. 

If you're moving in with Mom one option is to rent it out (even at $1600) and pay it down aggressively.
How much money beyond the $2000/month can you reasonably hope to contribute? If you rent it out for $1600/month and add your normal $2000/month you will start to make a dent in the principle, but it will take a few years before you can sell it and walk away with money in your pocket.

If you sell it it sounds like you might take a $6k to $10k loss, depending on closing costs.  In the long term that isn't horrible - you can take a face punch, call it a lesson in real-world economics and move on. 

oldladystache

  • Pencil Stache
  • ****
  • Posts: 785
  • Age: 76
  • Location: coastal southern california
Re: Sell this house at all costs?
« Reply #2 on: February 18, 2014, 01:16:40 PM »
I'd say yes, sell it for whatever you can get and move on. And don't waste spend time and money fixing it up. Just sell it as is. Maybe a little cleanup and paint, but not much.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5220
Re: Sell this house at all costs?
« Reply #3 on: February 18, 2014, 01:18:52 PM »
How is the debt structured and who owns the loans?  Can you refinance the underlying first if the second is willing to subordinate?

How quickly is property in your area appreciating?

You have a pretty significant loss and you will have to bring money to the table.  At the best case selling price of $180,000 and paying 6 percent sales commission and 3 percent buyer's closing costs plus your closing costs, you may net around $160,000.  Can you live with the realized $40,000 loss and come to the table with $23,000 in cash?

If property is appreciating rapidly and you can live with the cash bleed, it might be worth renting it out for a year.  Long term, you are below 1 percent per month, but not by that much.  You would have to refi to make it work, however.

highwayskies

  • 5 O'Clock Shadow
  • *
  • Posts: 40
  • Age: 44
  • Location: CT
Re: Sell this house at all costs?
« Reply #4 on: February 18, 2014, 01:46:37 PM »
Seeing it on paper sure feels like a "hair on fire" emergency! 

The mortgages are both banks, all roads to refi have been denied.  OTOH (and to Another Reader's point), property in this particular (desirable) town is always the first to come back, and is starting to.  My agent friend told me it will almost certainly go up from here, possibly a good deal, given time.

Given our new circumstances, in just over a year, it looks like I can pay off the 2nd mtg, and perhaps sell or refi at that time (though rates will be higher than now, maybe they'll be lower than 6.875%. 

From feedback I'm getting, it's better to take the $300-400/mo hit renting, rather than the $20k+ hit on selling now, yes?  It could even become a small income stream one day, with reorganized financing.
« Last Edit: February 18, 2014, 01:49:26 PM by gregw »

phred

  • Pencil Stache
  • ****
  • Posts: 506
Re: Sell this house at all costs?
« Reply #5 on: February 18, 2014, 03:21:13 PM »
best bet is to pay off the second mortgage as quickly as possible

horsepoor

  • Magnum Stache
  • ******
  • Posts: 3497
  • Location: At the Barn
  • That old chestnut.
Re: Sell this house at all costs?
« Reply #6 on: February 18, 2014, 06:38:05 PM »
If you move out and rent it, you won't get the best owner-occupied refi rate later.  Ask me how I know.

With that said, if you aren't so fond of the property, moving out and renting it, and firing everything you have towards that second mortgage sounds like a good option.

Weedy Acres

  • Bristles
  • ***
  • Posts: 280
Re: Sell this house at all costs?
« Reply #7 on: February 18, 2014, 07:52:41 PM »
If property is appreciating, I'd look at the math this way:  Is it likely to appreciate in the next year by more than the $4000 you'll lose on rent?

Longer term, if you'd lose $20K today, 20K/400=50 months.  Is it likely to appreciate by 20K in 4 years? 

If yes, then hang onto it.  If not, dump it now.