Homeowner · Colorado Springs, CO · Member since 2009 · 8 posts · 0 votes
My husband and I have excellent credit, own 2 homes/mortgages (1 is a rental property), and due to a job loss and other issues, our income has been cut by half. We have tried to wait out the recession, but have given up and put our home on the market. We are not upside down, but keeping it is draining what little savings we have left. Then, there's the rental property; it was trashed by tennants, and we are currently in process of fixing it up (again, draining our savings rapidly).
We are wondering what the best approach would be to keep ourselves out of hot water. Our house that is for sale may not sell for months, and our agent warns we will be reducing the price along the way if we want to sell it. Our rental is available, and we could move in there and cut costs (when our house sells). Or we can put both on the market at reduced prices, so they sell, then at least out of two sales, have enough equity left to buy another home, OR . . .
the shocker - what if we were to stop making payments on our house, and move into the rental. Could the bank take both houses, or just the one we let go? :cry:
Why not aggressively price the homes so you don't have to keep dropping your price? If you're listing the property for the right price, it will sell. Doesn't that seem like the right move, rather than wait it out for months, constantly dropping your price, and paying all of the expenses on the property in the meanwhile?
If you want a property to sell, you can make it sell. You just have to be willing to take what people (other than you) think it is worth.
I had to make similar decisions on a rental last year, when the block it was on turned the wrong way, and I couldn't rent a unit, no matter what I did. I either needed to unload, and fast, or suffer months or longer of paying for a property that I'd never be able to fill with a tenant that I'd want in there. I priced aggressively and got much less then I wanted, but the property was out of my hair, along with all the problems that were attached to it, all of a sudden.
If you own the rental and other stuff, they can certainly sue you for enough to cover your debt. Of course, you'll need to check with an attorney to determine exactly what they can do in your state.
Anyway, if you have excellent credit and some assets, you need to fix this situation. As Josh said, I would aggressively sell the house and cut down on your expenses, so that you can preserve your credit and your reputation. What could possibly be the advantage of allowing the bank to foreclose on your house, when you have the ability to sell it and preserve your credit? That sounds crazy to me!
Yes, that is a stupid scenario. Just wondering how that would work IF we are unable to sell. With a zillion properties on the market, I guess the main thing is just to get enough out of it to pay the realtor. Thanks for the help.
I think you're considering what you owe in setting the listing price. Don't do that. The market doesn't care what you owe. The buyer doesn't care what you owe. That's your problem, nobody else's.
Have your agent show you the nearby comparable houses. You want yours to be the best deal around in order for it to sell. If you're just a little underwater after all the costs, ask your lender(s) if they will carry a loan for the difference. If you're far underwater, work a short sale. At some price, it will sell, and will sell quickly. I look in areas where there are tons of short sales and foreclosures, and almost every house gets multiple offers.
Is the rental actually making money? Sounds like not. Is the rent greater than the PITI (phoney cash flow, but better than the alternative?) Is the rent more than 2X the P&I part of the payment (true cash flow?) If it has true cash flow, I'd consider keeping it, since its carrying itself.
If your primary residence doesn't fit the "true cash flow" equation (rent > 2X the P&I payment), don't even think of renting it. You're in no position to carry it.
If the rental has the lower payment, move into it, and sell the other one, even if you have to do a short sale or carry a note for the shortage. If you do a short sale, get the lender(s) to agree not to come after any other assets. That will protect the other house and any other assets.
Jon & NC Mark -
Our residence was refinanced to an interest only loan 2 yrs ago - PITI is 1650. which is more than we can afford now.
The rental was carrying itself at $1200/mo with a PITI of $1100. But now, we're making improvements (thinking we will move in), which has been about $7000 out of pocket (savings).
Now is the moment of truth. What is the best thing to do? I think moving into the rental is probably the smartest thing, and reducing the residence to sell. Two years ago we tried to sell it at $375, but now have it listed at $339 (which IS the best deal in the neighborhood).
Think it's time to go to $325, and see if that brings a crowd. We can't take less than $300, or we won't be able to pay realtor fees.
Thanks for lots of good advise!
This statement still makes me think you're considering what you owe when setting the price. Forget that.
I'd call you agent and tell them you want a sale within 90 days. You want a price now that will generate a signed contract within that time. And, that you will terminate the listing agreement in 90 days contact or not. Banks do this all the time. If the agent can't produce a buyer, and quickly, NEXT!
If you have to bring some money to the table, figure out a way to do it. If its an unreasonable sum (I currently have offers around $60K on two house where over $150K is owed), work out a short sale. Your credit will be trashed, but unless you're in a position to make up the shortage, that's the price you're going to have to pay. Frankly, you were in trouble two years ago if the IO loan looked like a reasonable thing to do. Now, with the job loss, you're really in a bind.
A rental with $1200 a month in rent and $1100 PITI is a money loser. You're aware of that now, with the $7000 you're dumping into it (six years of your $100 a month "cash flow"), and the lost rent for the time its vacant (one year of "cash flow" for every vacant month.) If you want to own rental property, read in the Rental Property forum, especially about the "50% rule". I'd guess the taxes and insurance on that place to be about $250, so your P&I payment is about $850. You need rent of at least $1700 for the to be break even.
Is your gross income now at least $3600 a month? If so, I'd move into the rental. You surely do not want to invest $7000 just to have it trashed again. You're not in any financial position to have rentals, so you really want to dump the more expensive one. $300K houses DO NOT make good rentals. For that matter, houses with $1100 payments DO NOT make good rentals unless you're in New York or LA. Certainly not here in Denver and I don't think so in The Springs either.
My daughter is a realtor but unless i"m desperate I sell FSBO. It's hard but all you have to do is be willing to have open houses, get those signs and flyers in the tube and be nice to people. With concerted effort, we sold two houses within 8-14 days on two opposite ends of our town. Who knows more about the house than you do?
When you have tight margins (and both of these had been redone) you price the houses as low as you can (for me that's no commission FSBO) and work it.
I'd sell both and rent for awhile until I got back on my feet. If you have a portfolio held loan to a land contract, As your mortgage bank if they have that type of mortgage.
Sometimes there are a number of solutions.
I feel the owners' instincts are many times better than the "professionals"
Yes Jon,
That's the problem. We are up in a lose/lose situation. This is the reason for my outcry. What was good 3 years ago, has gone south, and we don't have the experience to know how to get out.
As far as pricing our home goes, I do think we are being reasonable. We have a 1/2 acre lot with incredible front range views, huge deck w/tub, 4 br, 3 ba, 2 car + RV parking. Bought in 01 for 278, and every other home in the area is listed at 349 and up. We owe 260.
The rental is not happening. We will either move in or sell it too & rent until we get out of this situation (thanks Lynn). You guys have been great, cause now I feel like I can make a fairly educated decision.
DO consider the FSBO--for Sale By Owner. In fact, consider a modified "5Day sale" The book "How to Sell Your Home in 5 Days" may be available at your local library, and it is available at bookstores.
It helped me understand HOW to sell by ownner, without the fsbo companies. I am preparing to do one now.
I will not follow the book, but have decided to tweak it a few different ways.
If you're interested, I will be glad to share them.
Ofgift
Ofgift, where are you located? Don't know what a "5-day" sale is, but perhaps I should look into it. I would guess the main thing is just reduce the price even lower ( the $20,000 that goes to the realtor). Put it on Craigs list and other online means. Give me alittle more. Thanks.
I just lost a response to you because BP was down,
Google "Kyle Cascioli." His website has a contact place, but go to the site itself. He has a lot of 5-Day related information. He is a RE agent in Denver who does a modified version of the 5 Day sale, and his site can be helpful.
Google “the official site of the 5-Day Method and the Book How to…†Sign up for the forum, read, ask questions, learn.
Basically, and not real accurately,
Have your house inspected, and have the results available.
Advertise your house for about half what it’s worth during a 5 day period starting any WEDNESDAY you choose, show it ONLY Saturday and Sunday for a few hours each day, and sell it Sunday night. You advertise starting on a Wednesday. If you do not have 25 responses by Friday night, do NOT proceed with the sale. Find out what happened, correct it, and reschedule for another time.
You determine what the market value is, cut that in half, and list it on local print media and free websites. The author gives you the info for the ads, (by owner, general location, description, date, days, times, “Will be sold Sunday night to the highest bidderâ€, your phone and email. You do not give your address until Friday night, after you know you have the 25 responses and are going ahead with the sale.
He gives you info for both the quick and the detailed descriptions, the telephone log, the bidding rules, etc. Avoid major events weekends, holiday weekends, etc. He tells how to handle various problems, and various things you might expect.
I will tweak his method several ways:
I will not use a 50% reduction for a listing price. I will use either a 20 to 25 % reduction list price, OR determine the lowest amount I’ll accept, and have the bidding start there. My hours will probably 1 to 5 PM on Sat and Sunday.
I will advertise at least the Wed. prior, so that I have two weekends of advertising. I do not think I will pay for a newspaper ad this time. I did before and did get many responses from it, but still do not think it was cost effective. I do expect to use Craigslist and other free websites, and probably a flat fee MLS listing, using a few suggestions regarding that. I may send out postcards to a local area radius. I don’t know how far I will go, a few blocks or subdivisions, or a few miles…
If I don’t get the 25 responses, I will cancel and reschedule.
I will have neighborhood comps available if there are any available. Not much is selling here now.
There’s possibly a few more things but I can’t think of them now.
I will hire a couple of friends to help with the 2 open inspection afternoons.
I will use a title company for the closing. I did talk to a re lawyer, and he said he’s too expensive for the little work that needed done, that a title co would handle it far less expensively than he would. That may be state dependent.
If you have other questions, ask!
Ofgift
Meant to include that, if my house does not sell via the 5 Day sale, and it might not, even though we are going into our strongest selling season now, I may keep it fsbo. I may do a second sale a month lataer, or just list it at the perceived market value, rather than the beginning bid price.
Or, if I can get a 3 month contract with a RE agent, I may do that instead.
Best wishes.
Ofgift
Great advice regarding FSBOs. I've done a couple myself with great results, but it takes some work.
Be wary of dealing with Appraisers, some are idiots. I had one house appraise at $30k which I sold for $82k, go figure!
However, I always do closings with the buyer's attorney at their office.
The only document I need upfront for the Buyers to sign is the Contract for Purchase, which is usually pretty standard. I rent an attorney for $100/hour to prepare mine. Then you'll need to deal with the Earnest Money which needs to be put into an escrow account. Laws vary from state to state, but you should be able to find a 'rentable' attorney to guide you (and make sure s/he specializes in real estate because in these hard times many will claim to 'specialize' in 'everything').
I understand your pain and worry. Maybe these might advise might help. you could contact your bank and asked them about their homeowners assistant program to help reduce your mortgage payment and lower your interest rate. Some bank might have these program. For instance, Chase have a modification mortgage program to assist homeowners with their payment. Please check with your banks to help you out in a short terms.
*****SOURCE*****FROM CHASE BANK
HOPE THIS HELP___ FYI--Im new here =)
The "Making Home Affordable" Program
President Obama recently announced the Administration's plan to further prevent foreclosures and assist borrowers with mortgage loan modifications as part of the Homeowner Affordability and Stability Plan. This new Making Home Affordable program is a $75 billion plan to assist customers who are struggling to make their mortgage payments.
Chase is committed to helping our customers keep their homes. With the new eligibility details announced on March 4th for the Homeowner Affordability and Stability Plan, we have expanded options to help achieve this goal.
Making Home Affordable is expected to help:
* Home Affordable Refinance: Homeowners who have been continuing to make their monthly payments but have not been able to take advantage of refinance options to historically low interest rates because they have seen their property values fall.
* Home Affordable Modifications: Homeowners who are now struggling to make payments due to reduced or loss of income.
We will continue to update this page as more information becomes available about new rules, procedures or programs.
thank you Sonny,
that is something we will surely look into. if we could reduce our payments just long enough to sell our properties, we would be okay, i think.
it's looking like we wii try to sell both, as long as we can capture $40 grand out of the combined equities and buy something cheap for now. Thanks again.
Anne
Sonny is right, talk with your lenders to start a workout program. With Mr. Obama's HASA (Home Affordabilty and Stability Act) the lenders are open to creating a workout with you. They get bonuses from the government when they are successful.
Before this act, I have successfully worked with homeowners that were exactly in your situation... They had a homestead and a rental, and wondered what options they had. Sometimes I was able to get the lenders to agree to an interest only note with a one or two year balloon, in order to get the homeowner back on their feet, before they needed to start paying PITI. There are many other ways to approach this situation, but let's look at what the new program offers first.