Seeking creative solution - new investor & upside down

5 Replies

Hello! I’m a fairly new BP member and have been looking to diversify my investments and get into buying and holding single families and multi-families for quite some time. I’ve been attending my local REIAs, reading a ton of books over the years, and listen to podcasts, especially BP. I’m in a bit of a situation and seeking some creative ideas that will prevent me from losing a ton of money. I’ve spoken with many people over the years and haven’t yet come up with a comprehensive strategy.

My scenario:

I purchased a 2/2 condo in Delray at the height of the market in 2007 for $170,500 after obtaining a first time home buyer grant from the county using the SHIP program. The grant went toward the down payment and was for $45,000, interest free. For the extent of the grant (which the county now calls a 2nd mortgage), I must live there and cannot rent it out. By doing either, I’d need to repay the full amount. The only exception to this is in the case of a short sale where they’d take $3k as long as I make no money on the sale. I have spoken with the county on this and they say they make no exceptions. They audit me by sending a form every year seeking a copy of my driver’s license and a utility bill that goes to my address.

I owe:

Freddie Mac loan: $112,337

SHIP Grant (mortgage): $45,000

Total: $157,337

In my community recent sales have been as high as $124k (for a flip that was fully upgraded) and average around $105k. There hasn’t been a sale in many weeks in this community and about 5 units have been on the market for quite some time. I know the S. Florida market may have cooled down a little and I’m sure people are waiting to see what will happen with the election as well.

I hesitate doing a short sale as I have excellent credit and would like to use that to my advantage as an investor, so I’ve essentially felt stuck in this condo for almost 10 years now. I am not behind on any payments.

My condo fees are astronomically high each month ($569) due to the community not funding the reserves and being a neglected 36 year old community with many needed repairs. I have been extremely instrumental in helping to turn the community’s financial situation around in the past 2 years as I joined the board as the president and have initiated several upcoming and impactful capital improvement projects.

I am now simply wanting out. I want to focus all the time I normally spend working on this community to my investment goals. I’m super ambitious and don’t let anything hold me back, but this situation has been the biggest perceived obstacle for quite a while now as I’ve waited and waited for the market to turn around.

I’ve made some upgrades to my unit: new AC, hurricane shutters, bamboo flooring, as examples over the years, but haven’t upgraded the cabinets, countertops, or tile in the kitchen or bathrooms.

If I bite the bullet and pay the $45k to the county, I would be able to rent the unit out for the time being although it is not likely to cash flow. Rents are around $1,300 right now and with the cost of my mortgage and condo fees, I would be negative.

What would you do to get yourself into a situation where you can move on from this property and begin investing in a different community (for low money down) without going too far into the red?

Looking forward to any advice you may share!

Brittany

Sorry to hear about your challenges with the condo! I deal with distressed assets on a daily basis and I don't see too many truly legitimate solutions besides weathering the storm or doing a short sale especially since you are being audited for maintaining it as your primary. It's tough to turn a property that's underwater /w no positive ARV in site into a win for a buyer unless it's being acquired below market value.

Unless If I had at least 500k-1M in cash, I'd be super hesitant about paying 45,000. With that money you can get a HML or potentially a non private money loan /w a higher interest rate and get into an investment project.

Credit can be repaired when one does the right things.

A short sale /w FHLMC as the investor can be difficult when a borrower is current due to the their guidelines. At times they are known to ask for seller contributions or promissory notes in the states where it is allowed.

Feel free to reach out if you want to speak.


Do you have enough capital for down payment on a new purchase (or two)? That would allow you to invest and THEN do a short sale on your primary residence? Your credit would take a hit, but you should be able to build it up again over time. At least you wouldn't be stuck in the place and it sounds like you'd only be out $3k. 

Since you have a Freddie Mac loan, you should qualify for a HARP refinance. Not sure how much that would help you since a refi would combine your loans and then you'd be paying interest on the $45k loan, but it might lower your payment and interest rate and if it's low enough, you *might* be able to get a renter in there...

Could you do a lease option - or Rent to own without violating the guidelines of the condo's rules?

Here's the link to see if you're eligible for a HARP refinance:

Freddie Mac HARP Refinance tool

If you purchase other homes and it reflects on credit just be advised the servicer or investor may deny you for a short sale on that basis. If ample time has elapsed chances will decrease of that occurring. 

I don't know if this is a good solution, but given the limitations that you described I thought this might be a good way to go. 

Perhaps you could aggressively pay down your current debt (45k SHIP and part of the mortgage) to get your debt in line with the property values in the area and then refinance (perhaps at a lower rate). If you are able to get a lower rate on a refi your mortgage would drop some and you'd actually have more options then. It might take a while to pay down your debt, so I would stay away from any repairs that weren't about to lead to imminent dysfunction and cut expenses.  It sounds like you want to get out of the unit, this would be one way of doing that.  Arguably, you could just blow your real estate investing out of the water and develop enough cashflow to cover expenses related to the unit.  If the unit is consuming all of your available disposable income, then generate some more via side jobs using skills you have or develop new ones. 

There are pros and cons to paying down your debt and you'd, of course, have to decide what is in your best interest. But, as another poster noted, you can repair credit relatively quickly if you have to do a short sale. You could also do wholesaling to help you get cash until your credit is repaired and possibly keep some of the units for yourself if they fit your criteria. You could market for unlisted properties and maybe even find sellers willing to do seller financing. I think you have lots of options available. The main problem is having to decide how much money you want to lose on the current purchase (those HOA fees are a killer and would make it hard to use as a rental). You could wait for the market to catch up to you, but that might take a very long time given the numbers you mentioned (I don't know your market so you'd have to figure that out). However, I don't know that I would want to do that myself.

Whatever you do, good luck. I hope it works out.

The way I see it you have two options 1) Flip your way out of the 45K debt. Shouldn't take too long to achieve that if you are focused. No money of your own for flips? Use other peoples money! Once you get the 45K debt gone then rent it even if you break even. 2) Short sale. My two cents worth is flipping your way past the 45K is your best option. Short sales have a negative impact on your credit. Personally I don't use banks for my flips but you never know, at some point down the road I might decide to do that so I don't want to close that door unless absolutely necessary. Best of luck!!

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