We are stuck with a newly built house

12 Replies

My husband and I have been doing this pre-construction thing since '05 and didn't know real estate would take a dump. We built one for 230,000 and now it's worth 190,000!! Holy Crap, how what? Our mort. payment when house is done ( one week away)is almost 2,000 a month and nothing over there is selling!! We paid our upfront closing costs etc. and are already out 19,000 which we refinanced our own house to do! Leasing out will only bring in 1200 or so a month. Is there anything we can do to be rid of this house without ruining our lives? There are 65 other houses just sitting there.
Please advise.
Thanks

Ouch; this is the second "bad news" post in as many days! Please read the thread titled, "Got off the fence and bought 3...", to see how bad it can get if you continue with this deal.

My only advice is to use one of the "out" clauses in your P&S contract to NOT cose on this unit. Sure you'll be out the $19K you've already put in, but that's better than throwing in the $19K and then bleeding another $800 or so a month in negative cash flow, "hoping" that the market comes back quickly enough to bail you out of this bad mistake.

I think we're in for a couple of years of flat and/or falling housing prices. My wife commented the other day that it's starting to look like the early '80s in Houston all over again. I think this time the problem will be more widespread geographically and also affect more of the higher end parts of the market.

all cash

That seems like a pretty high payment for that price of home. Take everything into account and make sure you look at your potential losses by dumping it now vs holding it for a few years.

If you pull some more equity out of your primary residence and can pay it down to an 80% LTV (if you have any left) and the rate should drop dramatically.

With an 80% LTV you could get an interest rate around 6% and an I/O payment of about $760 plus taxes and insurance. I know it sounds crazy to throw more money at it, but in most cases it is your safest choice. High LTV loans have very high interest rates and you are probably paying over 1% a year in mortgage insurance.

If you rent it for a loss, you may be able to take those loses on your taxes and depending on your tax bracket get a good chunk of that back. I get around 25% of my negative rents back on my tax returns.

If you put the extra money into it your payment would drop to 760, but your going to have to pay on that 40,000 on your primary residence. So that's probably going to cost around $220 a month.

Investment Payment $760
Investment Homeowners Insurance $100
Investment Taxes $100 (you will probably not get assessed your first year and just pay on the lot)
Primary Residence Increase $220

Total Cost would be around $1,180 and you would have to pay a property manager around $100 a month.

Looks like you could almost break even on it with the right mortgage and taking the cash out of your primary residence.

Things will rebound eventually, so if you can slow the bleeding down to a few hundred a month you can hopefully stick it out.

If you have been doing pre-construction since 2005 I am hoping you made some money somewhere to ease the pain.

I did this on a few properties in Lakeland, Florida. If you want more info you can shoot me a PM.

wow, that's a tough spot. i like robert's idea. i would hate to walk away from it, but that also sounds better than dumping another 20k in losses to hold onto it.

can you get out of it?

what about those neg. amort loans?

what about moving there? lol

To Robert's comment about being able to recover negative rents on a tax return, I assume this only applies if you don't earn over 150k AGI and you're screwed otherwise? Any creative ways to get around this limitation?

I was the one who first posted.
Update time:

We finally JUST got served foreclosure papers on our Ocala FL new home we built to flip.

We owed 203,000 and had it listed with a realtor. Dropped price few times and then down to 149,000. Can't GIVE it away. Gorgeous lot, home, etc.
One guy wanted it until he found out there is no high speed interenet or cable out there yet (very new subdivision in Marion Co.).
Long story short: The lender wrote saying they were going to have someone go out and take over property. Boy did they. Not only did they mow the grass, they took off the lockbox and put it into the house and then changed the locks on us. That was over a month ago and yesterday we got served the foreclosure papers. Heck, we still owe the builder a few thousand dollars, but then never heard from them again. It gets worse:
Someone shot out bedroom window with BB gun and stole the copper out of the air conditioner unit. We live 2 hrs. from there and kept up the payments for over a year and a half then gave up.

Originally posted by Tay Gainey:
Do you think that the houses aren't moving due to people not getting loans? Or the pricing of the homes in that area have become inflated?

The housing market will turn around only when first time buyers can afford to move into housing, whether "afford" is persieved or real also plays into account the turn around in an unknown way.

That is the basic crux of the housing market. It is and will always be driven by new home owners. Run ups can be sustained and wound up through smoke and mirrors like investors buying up a bunch of pre construction homes and bad loan programs, but the affordability for new buyers to get into housing runs the market.

Very stressful. Ashort refinance sounds like a good option. I suggest that you cut your losses, and make it ujp in the reo areana. You really can get properties at less that 50% market value!!