Need advice on an underwater investment

7 Replies

I hope I am posting in the right forum.  If not, please let me know and thanks in advance for not judging me on my bad investment :)

In 2007, I thought I could make some $$ on a preconstruction flip.

I bought a very nice condo in a preconstruction building in the Chicago city limits (in an up and coming area, not too upscale, but not the hood - close to a lot of nice stuff and the mass transit)

I bought for 390k with 5% down and took out an interest-only loan.

Alas, the real estate bust happened.  However ... my tale is not a tale of complete woe.

I rented the place out and I still manage to eke out a miniscule profit each month after mortgage, insurance, HOA etc. Minor repairs definitely do bite into the bottom line but it is a slightly positive cash flow.

I just am tired of treading water - I am not building equity, I am still underwater when I look at comps in the area (I think the place is conservatively worth 350K).

I am not real-estate saavy enough to know what my options are.

(1) I dont think I can refi cause my LTV is horrible.

(2) I cant sell without paying out of pocket

(3) I cant short sale

Any ideas for an exit strategy?  I just need folks with experience to weigh in.  WWBD (What would biggerpockets do)?

@Nick Arenaso Where is the condo located and how big of a unit.  Rents have gone up considerably in recent years have your rents followed that trend?

Do you have the ability to use it as your primary residence and attempt a Harp loan?

If you are break even you are not in too horrible of a position.  Being 8 years down the road ins your principle going down at all?

Hi @Nick Arenaso . I'd tread water and feed it a little before I stroked a $40k check + commissions at closing to sell it.  That's $60k-ish!  If you're losing $200 per month, that burn rate would take 15+ years or so to be the same.  If nothing's on fire, I would let the rents and values come up and / or occupy it as my primary as @Mark Ainley points out and give yourself some more options.  

Are you still investing in real estate?  A lot of us bought something at the top and made value mistakes.  Hang in there!

@Mark Ainley

 It's in Logan Square - Fullerton and Kedzie is the nearest major intersection. Top floor in a 6 floor condo building. It's the largest unit in the bldg -1400+ sq ft, 2 bdr 2 ba with a den that functions as an office/ 3rd bdr. Deeded parking. WA/DR in unit.

Been renting at 2K for a couple years now.  Just about to do a lease renewal at $2050.  I am an out of towner (No HARP option) so I am not too sure of the rental market. However with the same great tenant for the past 5 years, I only do minor increases in rent.  

To answer your other q. No principal is not going down - I did an interest only loan because I was blinded by the pre-construction flip greed.

@Steve Vaughan

 I stopped investing after this huge misstep.  I recently discovered biggerpockets and am eager to get back in the game.

Thanks for the feedback guys... definitely appreciate the constructive tips.

There are a couple of organizations in Chicago that will help you if you are upside down on your mortgage. You can try but you might need to spend some time in Chicago to get to these folks and have a talk with them. Look up the housing programs in Chicago and eventually you should get to the folks I am referring to. They might help you refi at a lower rate. They specialize in helping folks like you. Then if you can bring your payments down somehow this situation may be easier to live with. 

@Nick Arenaso I am far from a Logan Square expert but think values can be there in 18-24 months as I know traction is picking up.  

I understand your position because I have three properties I got caught in the downturn with that I lose basically the taxes per year but I am paying down principal.  I am unable to refinance and I care about my credit and future banking relationships too much to make any "business decisions" so I live with it. 

Maybe explore tenants moving out and creating a business model for Air BNB with the two rooms?  Logan square can attract wanted guests.

Originally posted by :

 I stopped investing after this huge misstep.  I recently discovered biggerpockets and am eager to get back in the game.

Thanks for the feedback guys... definitely appreciate the constructive tips.

 Here's the solution:

RENT TO OWN

Why this solves your problem:

1) You can charge higher than market rent - say $2200/mo since you're giving an option to purchase for your tenant/buyer. This means you will finally have positive cashflow!

2) You can also collect a NON REFUNDABLE OPTION CONSIDERATION. Probably around  3% of the sales price - $10K or more.

3) You can also charge a higher price - +10% premium since you're selling this house 1-2 years from now. At that point - game over - and you can still come out ahead.

Give me a call if you have specific questions on how to do this.

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