BiggerPockets

I'm a first time owner of an investment property. Challenge is that I did not figure in a senior tax exemption as well as homeowner exemption, which made the taxes look deceptively lower.

As it is, with the downturn in real estate in the Chicago area (we've had the property for about two years), in order to get tenants, we've had to go lower on the price, in order to fill the vacancy. We've been fortunate to have good tenants. However, it's becoming cost-prohibitive to hold the property. I've dipped way into savings, and even gone into some debt to cover the cost of taxes on the property.

Am wondering if there are creative options besides selling the place at a loss.

What I've already considered: rent to own (making for a higher rental price)

Using a self directed IRA to somehow tap into extra funds. (legally)

Is hard money a worthwile option?

Would it be realistic to approach a seasoned investor who has a lot of extra funds and ask him to invest some money (which would cover holding costs until the future sale of the property), and count him/her in as a part-owner?

Right now, we are considering the following: rent w/ option to own, rent (letting the renter we will need to be showing the house, and that this will be a month by month rental situation, until the house is sold), sell immediately (but the average wait time till sale seems to be 3-6 months)

If there's anything I have not thought of, please let me know! I am in problem solving mode....I don't want to amputate my arm (sell the home at a huge loss) if I can put on a few tourniquets to make it only a small bleed :(

John, thank you for the untarnished facts. Yes, there is some equity, but I was thinking that perhaps we could assume future equity? But, given the amount of great deals that are out there, it would take a very benevolent investor to go in on that type of partnerships.

Another thought: looking for commercial loans to cover holding expenses? Or converting the current home equity loan into a commercial loan?

Steve -
A few years back I found myself in a situation where the neighborhood where some properties were located began to quickly dilapidate, and I was no longer able to reliably keep them rented. No matter what I did, I wasn't going to be able change what was happening around me. As a result of all factors, I had to sell at a considerable loss. Had I not, I'd still be bleeding cash.

We don't fully have all the details here, but I like to personally unload investments that are dragging me down.

Hi, well I don't know if you'll bleed for ten years or not. My first question would be how long do you expect to suffer. Borrowing long term fo short term expenses is the kiss of death in business(or your personal life). When do you have a repricing opportunity with rents and when is the current lease up?

Does the city exempt non-profit housing organizations from the taxes that are sinking you?

Most here know I'm just a wild and crazzzzy guy so hold on to your hats!

Look into a 1031 exchange for yourself with a non-profit housing organization. Trade your way out. If the organization would not have the tax liabilities that are putting your property under, it may work for them. They may have a property that they would trade for yours, I know it might not be the best deal, but your ship is sinking!

I would imagine Acorn is closed (LOL) but I'm sure there are others. I had a non-profit which I was the Executive Director of, with a salary and bennies, and the properties were for low/moderate income housing. I could trade for dogs and make them work.
It sounds as if you have dropped rents to get it rented that this might be available to you, don't know the property.

The only other suggestion as one you are considering, seller fina nce/wrp the deal, hopefully to the tenant. Tell them they need to pay more and you'll carry what ever equity you have. Amortize it so that you conserve your equity, but it has to cover the liabilities too. Hopefully you'll ahve something at the end.

If you lose the property your tenant will have 90 days to stay there after the sale. In light of that and the costs of moving, maybe they would now consider helping with the taxes in their rents.

Good luck, Bill

I would sell the property ASAP! Things are going to get worse - A LOT WORSE! There are literally millions of foreclosed homes that the banks are holding off the market. Foreclosures are going to explode in 2011. The housing bailout is just about to end. There is a HUGE inventory of houses that will have to hit the market at some time and will drive prices much lower.

None of these things even considers the macro economic picture. THE USA IS BROKE! The debt is 91% of GDP and RAPIDLY rising. The government's solution to this debt crisis is to borrow (print) more money by the boat load. Medicare is broke (even before the Socialist in Chief takes $500 Billion out of it to pay for socialized healthcare). Social security is broke. Freddie and Fannie are broke. Many states are broke. Many cities are broke. The government has essentially nationalized the big banks, the auto industry, big insurance, healthcare, student loans, etc, etc, etc. The country is literally insolvent and failing. If you've got a loser - NOW is the time to sell it.

I have my rental property business here in the USA because I live here and I need money to live on. It's hard to manage rentals in a different country. Furthermore, most of the "developed" world is in terrible financial shape just like the USA. Would you invest in socialist Greece? Portugal? France? Spain? Italy? Ireland? England? I wouldn't (unless I lived there).

Are you disputing that the USA is in terrible financial shape? If so, what part of my original post are you disputing? Do you actually believe that the USA is in recovery? If so, I've got a bridge to sell you!

Is this a loan or line of credit (HELOC)? Is this interest only, or principle plus interest? Is this financing taken against the rental property or against a property you reside in?

Here is how I look at this. You have to look your business's whole picture. Sure, every time I pull cash out of one house that is free and clear to purchase another, that first house becomes less profitable, but now I just purchased another which gives me an extra $550 a month in cash, actually only $200, because now I have a note on the first property. As long as you are only holding one property, you will always be at risk. I say hold the property, pull some cash out if you can and go and buy another to off set your risk and the money you are loosing on this property.

The ever increasing tax costs are just one small problem. Read in the Rental Property forum about the 50% rule and the TRUE expenses of rental properties. If your rent is just $200 over the PITI payment, you're almost certainly losing money every month. Well, not every month, because hopefully in most months you collect the rent and pay only taxes and insurance as expenses (debt service is not an expense)

The 50% rule says expenses will eat 50% of the rent. That includes taxes, insurance, maintenance, vacancy, legal fees, CPA fees, capital items like roofs and furnaces, tenant damage over security deposits, eviction expenses, utilities (at least when empty), etc. Again, read in the Rental Property forum.

If you're just above water in the good months, you're really going to be hurting when one of those bad events inevitably hits. Now, if you mean your PITI payment is $300 and the rent is $500, you're not too far off. OTOH, I'd guess (have to guess, since you still haven't given us a look at the real picture), your PITI is more like $800 and your rent is $1000. If $600 of that is P&I, then you're actually in the hole only about $100 a month, and ahead $200 a month in the good months. Save the $200 and add in another $100 out of your pocket each month until you have reserves of about $3000 and hang on.

OTOH, if you really mean the rent is $2000 and PITI is $1800, you're really hurting. If that's $1400 P&I and $400 in taxes and insurance, you're in the hole $400 a month. If you can sell now at a $10,000 loss or hold on with a $4800 annual loss, selling now is equivalent to a little over two years of holding on. If you hold on for two years and then take the $10K loss (highly likely, IMHO, knowing nothing more about your market than its in the US.), then you've doubled your pain.