Author Topic: Underwater house - go ahead, make fun of me  (Read 1885 times)

fredcanfly

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Underwater house - go ahead, make fun of me
« on: July 21, 2015, 08:14:13 PM »
I sincerely hope someone can help me figure this out.  I am fairly new to MMM, but I have already been able to dump an expensive cell contract, an expensive SUV, shore up some electricity spending, and start making some decent financial decisions (like investing with Betterment).  So, things are better than they were.

However, I would really like to dump our underwater rental property.  It did not start as a rental property.  I became disabled and needed to move back with family.  This property was purchased in 2007, and was not a smart purchase in the first place.  The crash only made the problem worse.  A few details:

Owe: $97,000  Value: $84,000 (hopefully).  It is in a neighborhood that is decreasing in value.  Taxes and insurance going up (have challenged taxes every year, and shop for cheaper insurance every year).  Rent: $875  PITI: $940.  Also hand over 10% to PM as the property is in a different state.  It is a VA mortgage, but not owned by Freddie or Fannie.  Have talked to bank about short sale, but bank doesn't want to do it (not showing that I cannot afford it).  Would like to be out of this home, as the rising taxes and insurance, plus maintenance, plus PM payment is draining my financials.  Problem is I do not have $13K plus $6K for realtors plus whatever the buyer can come up with needing fixed before they would buy.  I figure it's going to take $20K just to get rid of this thing.

I could stand to pay $150 - $200 per month on a loan to get out from this thing, but I am not sure that I could get an unsecured loan.  Don't know of any other options to dump this money pit and move on.  Really need some good advice on getting out, or what would be best for my long-term financials.  Thank you all so much!

lcmac32

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Re: Underwater house - go ahead, make fun of me
« Reply #1 on: July 23, 2015, 11:59:53 AM »
Do you have a bunch of assets?  You can walk away from it and let the bank foreclose and bank may not be able to come after the rest.  Lot's of details to look at, but sometimes it is the best decision.  Talk with a tax or bankruptcy attorney.  They can help you navigate the situation.

RFAAOATB

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Re: Underwater house - go ahead, make fun of me
« Reply #2 on: July 23, 2015, 01:07:11 PM »
I sincerely hope someone can help me figure this out.  I am fairly new to MMM, but I have already been able to dump an expensive cell contract, an expensive SUV, shore up some electricity spending, and start making some decent financial decisions (like investing with Betterment).  So, things are better than they were.

However, I would really like to dump our underwater rental property.  It did not start as a rental property.  I became disabled and needed to move back with family.  This property was purchased in 2007, and was not a smart purchase in the first place.  The crash only made the problem worse.  A few details:

Owe: $97,000  Value: $84,000 (hopefully).  It is in a neighborhood that is decreasing in value.  Taxes and insurance going up (have challenged taxes every year, and shop for cheaper insurance every year).  Rent: $875  PITI: $940.  Also hand over 10% to PM as the property is in a different state.  It is a VA mortgage, but not owned by Freddie or Fannie.  Have talked to bank about short sale, but bank doesn't want to do it (not showing that I cannot afford it).  Would like to be out of this home, as the rising taxes and insurance, plus maintenance, plus PM payment is draining my financials.  Problem is I do not have $13K plus $6K for realtors plus whatever the buyer can come up with needing fixed before they would buy.  I figure it's going to take $20K just to get rid of this thing.

I could stand to pay $150 - $200 per month on a loan to get out from this thing, but I am not sure that I could get an unsecured loan.  Don't know of any other options to dump this money pit and move on.  Really need some good advice on getting out, or what would be best for my long-term financials.  Thank you all so much!

Is paying $200 for a loan to get away from this money pit better than losing $200 to Rent-expenses?  Are you sure this area won't gentrify eventually leaving you to cash out?  Eventually the house won't be underwater either through appreciation or paying down the mortgage.  Can you ride it out until you can afford to pay off the difference straight?

norcalmike

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Re: Underwater house - go ahead, make fun of me
« Reply #3 on: July 23, 2015, 01:18:31 PM »
I'm curious as to why you would borrow money and take on a 150 to 200/mo loan to get out from under the place. You are already negative cash flow 150/mo by my calculations and you could potentially see a gain as time goes by.
I'd ride it out
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fredcanfly

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Re: Underwater house - go ahead, make fun of me
« Reply #4 on: July 23, 2015, 03:18:54 PM »
Do you have a bunch of assets?  You can walk away from it and let the bank foreclose and bank may not be able to come after the rest.  Lot's of details to look at, but sometimes it is the best decision.  Talk with a tax or bankruptcy attorney.  They can help you navigate the situation.

I have my car, the house I currently live in, and the rental house.  I imagine they could come after the house and the car, but they would not get much money in the end.  Net worth is hovering right around zero right now.  This would be the last option for me.

I'm curious as to why you would borrow money and take on a 150 to 200/mo loan to get out from under the place. You are already negative cash flow 150/mo by my calculations and you could potentially see a gain as time goes by.
I'd ride it out

I should have been more clear on the negative cash flow.  $940-$875 is $65, plus $87.50 for PM.  Then, I also have maintenance which I looked up now to total $5327 in the past 3 years.  Insurance and taxes have gone up every year at a rate of about 4%/yr for the past 3 years.  House value has fallen from $88,000 to $84,000 over that same time.  Neighborhood has been dropping since 2009.  House used to be valued at $112,000 when I paid $107,000 for it (still a stupid buy maintenance-wise - should have researched it more).

Is paying $200 for a loan to get away from this money pit better than losing $200 to Rent-expenses?  Are you sure this area won't gentrify eventually leaving you to cash out?  Eventually the house won't be underwater either through appreciation or paying down the mortgage.  Can you ride it out until you can afford to pay off the difference straight?

I don't see this area gentrifying any time soon.  The neighborhood was on the rise when I bought the house.  Schools were pretty good, and people renovated houses to make money.  The crash hit, and most of the people were in over their heads.  They saw this, and walked away then (Maybe I should have done the same then - but I feel attached to uphold my end when I sign a contract... and I didn't have this site then).  Foreclosures and short sales hit the area hard.  Drug elements moved in, being able to get newly renovated houses cheap.  The neighborhood is now one the cops patrol when they are looking for arrests.  The schools also took quite a hit as the area's teachers moved out as well.  Don't think this area is getting better anytime soon.  My property value is still falling in the mean time.  Don't think I'll see appreciation for a while.

In the mean time, I am watching money bleed out.  Some of my maintenance has gone toward repairing fencing and replacing the condenser unit outside the house as it was stolen (with the fence broken to get to it).  This was done overnight while the tenants were asleep in the house (must be heavy sleepers - I have full confidence that it was not the tenants that did it either).  My fear is that someday my tenants will get hurt and I will be on the hook for liability (not to mention property damage).

I guess I am just trying to slow the bleeding and get to something I can control.  $150 - $200 per month loan would get me a stable payment that will not change.  I know that it will stay that until it is paid off.  I figure I might be able to get a loan from my parents for $15,000 to cover realtors and the rest of the mortgage (I have another $5K in case it takes more).  They would want 3%, but would let me pay over 10 years.  I would then probably pay about $200/mo to get it paid back sooner.  Then, I am finished within 7 years time.  I honestly don't think my house is going to regain it's value enough to break even and pay the realtors in that time frame.

Wile E. Coyote

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Re: Underwater house - go ahead, make fun of me
« Reply #5 on: July 23, 2015, 03:46:50 PM »
I am sure some of the more savvy real estate investors can provide more useful advice, but a house worth 84,000 that rents at 875 doesn't sound all that bad.  Yes, you paid more for it and you don't get that much in rent because you use a management company, but the lost value is what it is, and you may want to consider letting it ride and losing the management company.  Yes you are out of pocket due to the negative cash flow, but your are also reducing principle and getting some tax benefits.  As long as rents don't drop or vacancy becomes an issue, you may be better off letting the tenants help you get back above water. Assuming of course you don't keep having ridiculous maintenance expenses.
« Last Edit: July 23, 2015, 03:49:20 PM by Wile E. Coyote »

fredcanfly

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Re: Underwater house - go ahead, make fun of me
« Reply #6 on: July 23, 2015, 05:41:50 PM »
I am sure some of the more savvy real estate investors can provide more useful advice, but a house worth 84,000 that rents at 875 doesn't sound all that bad.  Yes, you paid more for it and you don't get that much in rent because you use a management company, but the lost value is what it is, and you may want to consider letting it ride and losing the management company.  Yes you are out of pocket due to the negative cash flow, but your are also reducing principle and getting some tax benefits.  As long as rents don't drop or vacancy becomes an issue, you may be better off letting the tenants help you get back above water. Assuming of course you don't keep having ridiculous maintenance expenses.
I can appreciate that point of view.  You don't think I should be worried about a liability issue?  Just trying to work out what I should be concerned about.  I know that the house was broken into while I was at work about a month before I left.  Between that, and the stolen A/C unit, I am quite concerned about future events/liability.  Thinking about an umbrella policy to mitigate losses in that area.

Also, at the current rate, it'll be 11.5 years before I will be back above water, and another 4.5 before I will have enough to pay the real estate agents.  Is it better to wait that long for equity, or pay for a loan that doesn't buy me anything that I can pay off in 10 (at about the same monthly output)?  Seems like a rock and a hard place...

Thank you to everyone who has posted so far.  You give me a lot to think about...

Gerard

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Re: Underwater house - go ahead, make fun of me
« Reply #7 on: July 24, 2015, 10:09:15 AM »
When you say rent is 875 and piti is 940, there's a fair bit of principal in that, isn't there? Like, you're not actually losing money there, you're just not cash flow positive.

The repair/renovation/maintenance expenses are a bit troubling, though...
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zephyr911

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Re: Underwater house - go ahead, make fun of me
« Reply #8 on: July 24, 2015, 10:37:32 AM »
Just how much is the "TI" portion of that PITI, and have you asked about a refi? There's a specific option called an Inline Rate Reduction Loan (IRRL) that might work for you. No appraisal, upside-down should be OK, and the current use may not be an issue either.

I just refi'd a 30yr VA for $175K and PITI is only $905 - only about $0.52 per $1000 financed. Your ratio is almost 2x that... if you can get it down, you might actually see positive cash flow.
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BlueHouse

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Re: Underwater house - go ahead, make fun of me
« Reply #9 on: July 26, 2015, 04:04:21 PM »
Sorry you're underwater.  I had a similar issue and decided waiting it out was the best option for me at the time, but it brings extra stress to my life, as I don't enjoy being a landlord and tend to worry about everything.

Have you spoken to any realtors about your situation?  You could see if they have any ideas about creative financing to see if there's some way to sell it without it costing you an arm and a leg.  For instance, you may be able to do a lease-to-buy for a higher price for rent for a reduced price if the renter ends up buying it.  Just a thought...no idea if it's feasible, but I would think realtors would know lots of tricks to make this kind of thing work out.
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