Columbia, MD · Member since 2014 · 9 posts · 2 votes
Hello BP,
I have had a rental property for the past 5 years. The property value is underwater due to the second mortgage on the property. I purchased the property as a primary back in 2008 with a 80/20 mortgage. I have refinanced the 1st mortgage but the secondary lender will not let go. With the refi of the first loan, I am almost breaking even with my rent income. I want to build a buy and hold portfolio and my thinking is I can start with this property. But I am not so sure now. If I could get rid of the 2nd mortgage, I will for sure break even or possible cash flow. Are there any creative ways to deal with this second mortgage without doing a short sale or foreclosure? Should I do a short sale and start over?
That is a tough question...
I bought all my rentals knowing that I would be losing money after the purchase... but I held out and got significant payback 10 years later...:
If you were not ready for the monthly negative cash flow, why did you buy in the first place ?
That is a tough question...
I bought all my rentals knowing that I would be losing money after the purchase... but I held out and got significant payback 10 years later...:
If you were not ready for the monthly negative cash flow, why did you buy in the first place ?
A short sale will hurt your credit and may prevent you from purchasing more properties from a conventional standpoint. How far underwater are you? I know it's not ideal but could you swing an injection of capital into the property to get it back to the right LTV for a refinance on the second? If so, what does that do for your cash flow? The other option, if you are expecting to break even after the appropriate hold backs for vacancy, repairs, cap ex, and property management, is to simply rent it out as a break even and wait for appreciation and principal paydown to move you into the right position to sell or refi the 2nd mortgage.
Are your rents at market value? Can you grieve the property taxes to lower your payments?
Is it in an area that's appreciating?
Thinking of ways to squeeze some flow out of it.
I have had a rental property for the past 5 years. The property value is underwater due to the second mortgage on the property. I purchased the property as a primary back in 2008 with a 80/20 mortgage. I have refinanced the 1st mortgage but the secondary lender will not let go. With the refi of the first loan, I am almost breaking even with my rent income. I want to build a buy and hold portfolio and my thinking is I can start with this property. But I am not so sure now. If I could get rid of the 2nd mortgage, I will for sure break even or possible cash flow. Are there any creative ways to deal with this second mortgage without doing a short sale or foreclosure? Should I do a short sale and start over?
While you aren't "So sure now", doesn't sound like you have compelling and urgent reasons to not continue with the status quo. If you can afford the negative cash flow, keep it. If you are struggling and your financial situation is a house of cards, short sell it. You already bought it...if you can...hold it.
You could also stop paying on the second. I am not advocating that but if what you say is accurate, they will destroy your credit (The second) but...will do nothing else. Continue paying the first. Let the second charge off their loan (They will retain the lien) and just wait for values to come back. A short sale is going to have more damaging credit than a charge off. Both are damaging.