Author Topic: What to do with the rental property that's constantly loosing us money  (Read 6386 times)

mrsggrowsveg

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A little background on this property that is causing so much trouble:

This was my husband's house before we were married.  He purchased it for too much from a family member.  We wanted a house in a better area (people have been murdered right outside this house), so we decided to rent it out rather than sell it at a loss.  Every tenant has been an issue for us.  After one committed suicide and another threatened my husband with a gun and stole our appliances we handed it over to a rental company.  Even with the rental company, our tenants have all stopped paying rent at some point, caused damages that went way over the deposit and have been evicted.  Our last tenant was evicted a couple weeks ago.  Her deposit went to unpaid rent and the damages are $1,700.  Since the house is vacant, we feel like it would be a good time to check into our selling options.  My question is should we sell at a loss, fix damages and rent again, or refinance before renting again? 

Here is a breakdown of the financial information:

Mortgage left on house:  $36,242 at 5.5%
Zillow estimate:  $28,000
County Estimate:  $24,770
Amount charged for rent:  $450
Mortgage monthly payment:  $367
Rental company fees:  $40

acroy

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Re: What to do with the rental property that's constantly loosing us money
« Reply #1 on: February 26, 2015, 07:19:59 AM »
I have to say cut your losses & run. Sounds like no way to turn this around. Best of luck!

destron

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Re: What to do with the rental property that's constantly loosing us money
« Reply #2 on: February 26, 2015, 07:38:50 AM »
Is it worth throwing more good money after the bad? Also factor in your time and stress from dealing with this. That effort could be used elsewhere. I say bite the bullet and sell.

Thegoblinchief

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Re: What to do with the rental property that's constantly loosing us money
« Reply #3 on: February 26, 2015, 07:49:54 AM »
Treat it as a sunk cost and sell it. Even if it was making money, it wouldn't be worth the emotional hassle. And the last thing I'd want to worry about with a new baby on the way is knowing your husband has been threatened with a gun by tenants. I've been threatened with a knife before, I can't imagine what a gun is like.

I'm surprised you haven't ditched it earlier.

ShoulderThingThatGoesUp

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Re: What to do with the rental property that's constantly loosing us money
« Reply #4 on: February 26, 2015, 07:53:36 AM »
Not getting violently threatened is worth $10k. Isn't that why everybody pays taxes?

scrubbyfish

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Re: What to do with the rental property that's constantly loosing us money
« Reply #5 on: February 26, 2015, 08:32:43 AM »
I'm with everyone. Sell.

I went through a landlording experience that was awful. Not as awful as yours, but similar in the sense that too many tenants ended up being highly problematic. I was SO GLAD when it was over, and I'm betting you will be too! It's hard to let go/avoid getting sucked back in, but if/when you can pull that off, I think your sense of joy and freedom will soar, despite the financial loss. (And a $10k loss is smaller than what a lot of landlords who continue renting out face.)

mrsggrowsveg

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Re: What to do with the rental property that's constantly loosing us money
« Reply #6 on: February 26, 2015, 09:43:12 AM »
Thank for your the feedback.  You confirmed what we had been feeling about the situation.  It is just so hard to give up that amount of money.  I talked to a Realtor who seemed very positive and thought that we could sell it for more than I expected.  I am hopeful that she is right.

kib

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Re: What to do with the rental property that's constantly loosing us money
« Reply #7 on: February 26, 2015, 10:41:34 AM »
You can also consider going with a midpoint strategy: repaint the worst room, clean up anything gross, mow the yard, put a little potpourri in the kitchen and then call it "as is".  You don't have to do the fix up work, but giving people a vision of how nice it could be is helpful. You can do this for $100, maybe $200, and it will still make a better impression than an outright fixer upper that looks as if it's about to crumble to the ground, hopefully getting you a better selling price.  (And I'm with everyone else, Sell, Sell, Sell.)
« Last Edit: February 26, 2015, 10:45:45 AM by frufrau »

mrsggrowsveg

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The rental company is going to clean the house and haul away trash for $200.  I think we are going out there this weekend to do some painting and such.  The real estate agent told us that we would need to list the house for $39,000 to break even and that is what she suggests.  She also said the comparable are selling around $25,000 and have been on the market for an average of 300 days.  I don't think there is any way it would sell for her suggested amount.  I am really worried about it being on the market for so long.  Paying the mortgage and utilities for a year along with the loss will really hurt us financially.

scrubbyfish

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I think sometimes we need to cut our losses and move on. I'd list for a price that will move in within 2-3 months.

I know that's what I'd do, because that's what I did do! When I was ready to sell -after I'd moved to another city and had a really awful tenant situation brewing- I sold at the fast price. In the market, this still allowed me gains, so I was lucky, but there was no way I was going to hang on for the $20,000 more I thought I might get if I were patient. I was emotionally and psychologically DONE, and the tenant was actively damaging the property, so to me the risks to my brain and investment were too high to make a possibility of $20,000 worth it. I tell myself it's the same reason I'm not a prostitute: Some financial gains are simply not worth the stress and risks.

sammybiker

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Re: What to do with the rental property that's constantly loosing us money
« Reply #10 on: March 04, 2015, 12:05:32 PM »
Your mortgage is almost nothing so aside from further tenant damages, you're not hurting on a month to month basis.  I don't know what your taxes/insurance are but I imagine they aren't much either.

What I would do...

1) Fire your agent.  She is obviously incompetent and will only hurt your situation at this point and when you ultimately do sell for absolute bottom dollar to some investor, she'll kick you when you're down and take a few more bucks from you.  Waste of time.  Fire her immediately.

2)  Sell it to an owner occupant on a lease-option.  Judging from what you've drafted, there should be plenty of applicants in the area that would be interested in this.  Read-up on lease options, how to screen the tenants, etc.  You'll receive a larger payment (option payment) - maybe 1k-2k, that can be used as damage deposit if required. 

Another alternative...

3)  Sell to a local investor who specializes in this type of area but carry the note - seller finance.  He's going to be stoked as he'll get into the property with little/no money down and just pays you a flat payment every month.  This should more than cover your existing mortgage costs and even allow a bit of cash flow.  **You'll need to confirm you can go this route with an existing mortgage in place**

The agreement will include a market price - say 39k - that is due as a balloon payment after say 60mo.  He has 60mo to sort out alternate financing to buy you out at your pre-agreed price (39k).  Meanwhile, you get a check every month from him.

There are creative ways to exit this deal and not only NOT take a loss but post a small gain along the way.

That said, if you really want to just eliminate the pain and swallow the loss, reach out to local investors and approach them directly on this deal and wanting to get out.  After you fire your agent.  Those local investors are likely the only ones that will cash you out fully anyway (if you're not interested in going after any creative exits) and there is no reason to allow your useless agent to take a fee on that.
« Last Edit: March 04, 2015, 02:11:39 PM by sammybiker »

Another Reader

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Re: What to do with the rental property that's constantly loosing us money
« Reply #11 on: March 04, 2015, 12:43:09 PM »
+1 to Sammybiker's comments.

Do not under any circumstances contractually bind yourself to an agent that tells you to list it at $39,000 when comps are selling for around $25,000 and have been on the market an average of 300 days. If you want to sell for cash, start looking for investors and collecting offers today.  Otherwise, do the minimum required to make it habitable and follow Sammybiker's suggestions.

If the property goes vacant, it will likely be stripped, torched, or occupied by squatters.  Then you will have a completely worthless property and you will have stirred up a local government agency hornet's nest known as code enforcement.   You will end up giving it back to the bank and you could be on the hook to the city for the teardown/cleanup.

Oh, yeah, be sure to terminate the property management agreement before they sign up another loser of a tenant.

Gone Fishing

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Re: What to do with the rental property that's constantly loosing us money
« Reply #12 on: March 04, 2015, 12:50:20 PM »

If the property goes vacant, it will likely be stripped, torched, or occupied by squatters. 

Make sure your insurance is up to date!

Another Reader

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Re: What to do with the rental property that's constantly loosing us money
« Reply #13 on: March 04, 2015, 01:01:55 PM »
Insurance is another unpleasant problem.  Most insurance policies do not cover you once the property is vacant for 30 days.  You will likely have to purchase a vacancy rider to keep the coverage in force.  That's not likely to be available for this property.  Most insurance companies are going to decline the risk.

eil

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Re: What to do with the rental property that's constantly loosing us money
« Reply #14 on: March 04, 2015, 01:14:44 PM »
I'm tempted to ask why this house has been such a hassle. I'm not a real estate expert or landlord, but maybe there's a way to turn this around.

Can you fix the place up a bit and charge more for rent? Don't feel at all bad about raising the rent in order to get a more dependable class of tenant, as long as the house is not a shithole. $450 for a whole house seems ridiculously low. I paid that much for a tiny one-bedroom studio apartment in an average area 15 years ago.

Credit checks will go a long way toward weeding out the people who hop from rental to rental and try to capitalize on the grace period between not paying their rent and being forcibly evicted. Some are practically professionals at this and know every legal trick in the book to keep themselves from getting an eviction enforced while not paying a dime in rent. They can drag it out as long as six months in some places. But it's not the kind of thing they can easily hide on their credit record.

Make sure the renters are contractually responsible for part of the upkeep of the property and ensure they understand this. At a minimum, this would include mowing the lawn, replacing lightbulbs, possibly even sharing the cost of appliance repairs. (But things like electrical, plumbing, and structural issues would of course stay with you.) The rationale here is two-fold: 1) right away you weed out the lazy who will see this as an undue burden on the kind of carefree lifestyle they think they deserve and 2) giving people a responsibility for something helps insure that they will take care of it to some degree, thus protecting your investment.

I would only sell if the house was in a bad area with no hope for significant development (basically, urban high crime or rural low income).

clifp

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Re: What to do with the rental property that's constantly loosing us money
« Reply #15 on: March 04, 2015, 01:36:38 PM »
Losses are part of investing. While they are painful, I like to look at bright side Uncle Sam and generally your state shares in your losses.   Generally speaking you can deduct the losses on rental property off of your taxes. Now there are special rules regarding conversion of your primary residence to a rental property,which you should familiarize yourself with before committing to a specific action. For example you may want to keep it as rental for a few months to qualify.

My experience when renting place for so cheap $450/month you get pretty awful tenants, I kept my 4 plex in Vegas less than year because while in theory the cash flow was terrific in practice the cost of eviction and dealing with damages ate up all the profits.

mrsggrowsveg

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Re: What to do with the rental property that's constantly loosing us money
« Reply #16 on: March 04, 2015, 01:54:28 PM »
I think sometimes we need to cut our losses and move on. I'd list for a price that will move in within 2-3 months.

I know that's what I'd do, because that's what I did do! When I was ready to sell -after I'd moved to another city and had a really awful tenant situation brewing- I sold at the fast price. In the market, this still allowed me gains, so I was lucky, but there was no way I was going to hang on for the $20,000 more I thought I might get if I were patient. I was emotionally and psychologically DONE, and the tenant was actively damaging the property, so to me the risks to my brain and investment were too high to make a possibility of $20,000 worth it. I tell myself it's the same reason I'm not a prostitute: Some financial gains are simply not worth the stress and risks.

I do feel that way, but we also don't have $20,000 sitting in the bank.  I don't want to use retirement money.  Would a person take out a loan to cover this or keep paying the mortgage?

mrsggrowsveg

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Re: What to do with the rental property that's constantly loosing us money
« Reply #17 on: March 04, 2015, 01:55:20 PM »
Your mortgage is almost nothing so aside from further tenant damages, you're not hurting on a month to month basis.  I don't know what your taxes/insurance are but I imagine they aren't much either.

What I would do...

1) Fire your agent.  She is obviously incompetent and will only hurt your situation at this point and when you ultimately do sell for absolute bottom dollar to some investor, she'll kick you when you're down and take a few more bucks from you.  Waste of time.  Fire her immediately.

2)  Sell it to an owner occupant on a lease-option.  Judging from what you've drafted, there should be plenty of applicants in the area that would be interested in this.  Read-up on lease options, how to screen the tenants, etc.  You'll receive a larger payment (option payment) - maybe 1k-2k, that can be used as damage deposit if required. 

Another alternative...

3)  Sell to a local investor who specializes in this type of area but carry the note - seller finance.  He's going to be stoked as he'll get into the property with little/no money down and just pays you a flat payment every month.  This should more than cover your existing mortgage costs and even allow a bit of cash flow.  **You'll need to confirm you can go this route with an existing mortgage in place**

The agreement will include a market price - say 39k - that is due as a balloon payment after say 60mo.  He has 60mo to sort out alternate financing to buy you out at your pre-agreed price (39k).  Meanwhile, you get a check every month from him.

There are creative ways to exit this deal and not only NOT take a loss but post a small gain along the way.

That said, if you really want to just eliminate the pain and swallow the loss, reach out to local investors and approach them directly on this deal and wanting to get out.  After you fire your agent.  Those local investors are likely the only ones that will cash you out fully anyway (if you're not interested in going after any creative exists) and there is no reason to allow your useless agent to take a fee on that.

Thanks for these options.  I will talk to my husband about these and see if they could work for us.

mrsggrowsveg

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Re: What to do with the rental property that's constantly loosing us money
« Reply #18 on: March 04, 2015, 01:57:24 PM »
I'm tempted to ask why this house has been such a hassle. I'm not a real estate expert or landlord, but maybe there's a way to turn this around.

Can you fix the place up a bit and charge more for rent? Don't feel at all bad about raising the rent in order to get a more dependable class of tenant, as long as the house is not a shithole. $450 for a whole house seems ridiculously low. I paid that much for a tiny one-bedroom studio apartment in an average area 15 years ago.

Credit checks will go a long way toward weeding out the people who hop from rental to rental and try to capitalize on the grace period between not paying their rent and being forcibly evicted. Some are practically professionals at this and know every legal trick in the book to keep themselves from getting an eviction enforced while not paying a dime in rent. They can drag it out as long as six months in some places. But it's not the kind of thing they can easily hide on their credit record.

Make sure the renters are contractually responsible for part of the upkeep of the property and ensure they understand this. At a minimum, this would include mowing the lawn, replacing lightbulbs, possibly even sharing the cost of appliance repairs. (But things like electrical, plumbing, and structural issues would of course stay with you.) The rationale here is two-fold: 1) right away you weed out the lazy who will see this as an undue burden on the kind of carefree lifestyle they think they deserve and 2) giving people a responsibility for something helps insure that they will take care of it to some degree, thus protecting your investment.

I would only sell if the house was in a bad area with no hope for significant development (basically, urban high crime or rural low income).

It is a "shithole" as you describe.  It was part of a very cheap 1950's military housing development.  It is in a high crime urban area with many vacant houses.  I think the rental company was checking credit scores, but I am not sure.  I will check on that.

Gone Fishing

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Re: What to do with the rental property that's constantly loosing us money
« Reply #19 on: March 04, 2015, 02:06:03 PM »
I'm tempted to ask why this house has been such a hassle. I'm not a real estate expert or landlord, but maybe there's a way to turn this around.

Can you fix the place up a bit and charge more for rent? Don't feel at all bad about raising the rent in order to get a more dependable class of tenant, as long as the house is not a shithole. $450 for a whole house seems ridiculously low. I paid that much for a tiny one-bedroom studio apartment in an average area 15 years ago.

Credit checks will go a long way toward weeding out the people who hop from rental to rental and try to capitalize on the grace period between not paying their rent and being forcibly evicted. Some are practically professionals at this and know every legal trick in the book to keep themselves from getting an eviction enforced while not paying a dime in rent. They can drag it out as long as six months in some places. But it's not the kind of thing they can easily hide on their credit record.

Make sure the renters are contractually responsible for part of the upkeep of the property and ensure they understand this. At a minimum, this would include mowing the lawn, replacing lightbulbs, possibly even sharing the cost of appliance repairs. (But things like electrical, plumbing, and structural issues would of course stay with you.) The rationale here is two-fold: 1) right away you weed out the lazy who will see this as an undue burden on the kind of carefree lifestyle they think they deserve and 2) giving people a responsibility for something helps insure that they will take care of it to some degree, thus protecting your investment.

I would only sell if the house was in a bad area with no hope for significant development (basically, urban high crime or rural low income).

It is a "shithole" as you describe.  It was part of a very cheap 1950's military housing development.  It is in a high crime urban area with many vacant houses.  I think the rental company was checking credit scores, but I am not sure.  I will check on that.

Our rental is a step up from shithole, but still a pretty low budget rental.  I started by asking prospects about their credit.  EVERY single applicant told me outright that their credit wasn't that great, so it wasn't very good selection criteria.  Now I interview them and go with my gut.  I'm not perfect, but after dealing with enough losers, you get pretty good at culling them.

clifp

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Re: What to do with the rental property that's constantly loosing us money
« Reply #20 on: March 04, 2015, 02:16:02 PM »

I do feel that way, but we also don't have $20,000 sitting in the bank.  I don't want to use retirement money.  Would a person take out a loan to cover this or keep paying the mortgage?

I'd keep the mortgage. You do want to contact the lender and let them know what is going on. Since you bought the property as personal residence, there maybe some options available to you via something like HARP.  The mortgage will certainly be your cheapest money and all but the stupidest banks will work with you rather than risk you simply defaulting.  Another option might be to investigate doing a short sale, this will cause a credit hit, but for $20K it maybe worth taking.    Your broker should have discussed these options with you, I think find a new broker.

Another Reader

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Re: What to do with the rental property that's constantly loosing us money
« Reply #21 on: March 04, 2015, 02:35:20 PM »
I can't emphasize enough how much of a risk holding a vacant property is.  300 days vacant while you look for a buyer is not a reasonable plan.  Verify your insurance coverage in the event of a vacancy before you make any decisions.  Someone gets injured on the property?  You will be sued.  House burns down?  You will be giving the lot back to the bank.  With no insurance in place, you could lose everything.  If you don't want to go the creative sale route, a short sale or deed in lieu might be a better option, as Clifp suggests.  If you do not have the money to make up for the difference between the loan amount and the sale price, the bank should work with you.


kib

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Re: What to do with the rental property that's constantly loosing us money
« Reply #22 on: March 04, 2015, 02:51:14 PM »
Could you talk to your mortgage company about a short sale?  Don't know what your numbers look like and I haven't heard great things about going that route, but if you could get out of this doggy mortgage for what you can get for the sale without totally trashing your credit, it would certainly make your decision easier.

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Re: What to do with the rental property that's constantly loosing us money
« Reply #23 on: March 05, 2015, 12:39:16 AM »
Hey sounds to me your rental property is in a bad location. IF you feel your rental property is in a bad location or in the hood the majority of the people in those areas tend to be a higher risk for delinquencies with rent and not caring about your property. I learned having  a shithole  rental property is alot more head ache as a landlord. Like other people say it is an investment and you do take risks to win or to lose. IF I was in your position I would cut my losses and reinvest in places that have less crime rate :-)