Advice requested on what to do with troublesome property (all numbers included)

11 Replies

Hello All, I had posted this a while ago, but now I wanted to put all of the numbers out there and see if I could generate any creative solutions to my real estate problem. I'm not trying to sell the property on this post, so hopefully it doesn't get flagged for that reason, I just wanted to be completely transparent about the whole situation so anyone willing to offer some advice would know what I'm dealing with. Sorry it's so long, but I wanted to be thorough. Thanks in advance! 

So here's the deal with my current real estate conundrum. I have a townhouse in Western Massachusetts (Lanesboro), that was originally my primary residence but when I left the area in 2008 I couldn't sell it so I began renting it out. It's a unique property for the area with lake access but also on a busy road. When I purchased the town house in 2006, I got what I thought was a good deal at $169,500 at 6.5% interest only for 15 years with a balloon mortgage after that and a PMI of $66. The house appraised fro $201,000 and I thought I'd stay in in for a few years, and then sell it. My mentality was, the house will appreciate faster in those 3-5 years than I could pay down the mortgage with a P&I payment, and I'll cash out at between $180k-$190k and make a few bucks... WRONG!

Fast forward to today, I still have a $153,000 mortgage on the town house (Interest only), it's valued at around $163,000 (according to Zillow and other resources I've found) but there's a similar unit on sale for $169,000 in the complex that hasn't sold. I've had it rented since 2009 at $1,200 a month (minus a 10% manager fee), which covers the mortgage payment of $1,080 but doesn't cover the $268 association fee. The tenant pays for electricity. I've depreciated it each year straight line so the book value is down in $140's.

My tenant is moving out the end of June and I'm going to try and sell. But the market is still pretty soft in the area, and I need around $165,000 in order to break even (5% commissions, closing and lawyer fees, plus paying off the 1st mortgage).

I've tried and failed to refinance the property on multiple occasions, even through the HARP 2 program, but everyone keeps coming back with, "you don't have a 75/25 LTV ratio, so we won't touch it". I got one bank to agree to a refinance, that wouldn't save me any money (payments would be the same) but I would pay down some principle. But it would cost $4,000-$5,000 in closing costs and still have a PMI payment. But that fell through because there's an issue with the way the original title was keyed into some system on the Fanny Mae end, and they couldn't find the exact address that's written on the title in the system and Fanny won't change it to match the title, therefore, I can't get an approval for the refinance. It's a matter of the property being the 5th unit in the 3rd building of the complex and being written on the title as 305, but that not showing up in the Fanny Mae system.

Anyway, I've given up trying to refinance it, my tenant is leaving and I'm not sure I could re-rent it at the current rate, and basically the best case scenario is I sell it a loss (between $8,000 -$20,000 is my best estimate). The HOA won't allow weekly rentals or Air BnB style stuff which is a shame because I could rent the heck out of it for the summer and winter (it's near both lakes, mountains, Tanglewood, and a ski resort). Plus I'd have to pay the depreciation recovery tax as well (although I'm not too worried about that). I don't want to short sell it because that'll hurt my credit and ultimately other real estate endeavors including a new house I'd like to buy in the near future.

So there you have it... That's pretty much the story. I'm painting and cleaning it beginning of July and plan on putting it on the market for $159,000 plus a bunch of incentives like paying the rest of the year's association dues to try and entice someone to come in and take it off my hands. If I can get anywhere in the $150's I'm still coming to the table with about $10 grand, but that's doable for me and totally worth it. Anything lower than that... well I'd like to avoid if at all possible, but I don't think I will be able to. I'm also moving to Vermont, so I'll be about 2 hours away from the property, so marketing and selling myself doesn't really make much sense. 

That's everything! Any ideas would certainly be helpful!

You bought close to the top of the market in 2006 before it crashed in 2007 and used an interest only loan thinking the market would keep riding up and even with no principal pay down you would be sitting on equity etc.

Even if you could refi into the 4's the savings would be minor because you are introducing back in principal and interest payments. You would have to hold the property a long time to get back your refi costs to breakeven before it starts paying  off.

Sometimes as asset managers have told me  borrow wants to get away CLEAN and unscathed. The reality is such an option does not exist all the time and there comes a point where there is a less painful option and a more painful one.

Maybe hope for a cash buyer so you do not have to pay closing costs for the buyer. Maybe self list the property or get discount side to save 3% because your margin is so thin.

If you have nice furniture maybe sell the unit furnished with a bill of sale to get extra cash for less out of pocket and then get financed furniture for your new place that you can pay for over time etc. it would also help save on moving costs. It sounds like you are going to have to bring some money to closing to sell this.

Considering you did interest only your situation did not turn out that bad. I know people in much worse situations.

No legal advice given.  

Forgot to mention some lenders if the amount is small sometimes will let you take a promissory note for the difference and pay for it over a few years if they are made almost whole from the sale.

Their interest would just go unsecured at that point.

You would need to talk to your lender about such an option if available.

@Christopher Triolo

You've already eliminated your best bet, AirBNB.  You could ask the association for an exemption.  Worst they say is "no" and you're still in the same boat.

I'm not familiar with Lanesboro, but most RE agents are going to want 6% on a property at that price range.

I've been poking around the numbers, and it looks like this place is going to cost you at least $300/month even if you could refi it.  Honestly I'd get out of it as fast as possible. 

 @Joel Owens had a good suggestion for taking an unsecured loan for some amount that you will owe your lender when all is said and done.  I've offer them 30% of the debt, and a 5 year term at 5% for the rest, no prepayment.  

@Christopher Triolo

Hey Chris,

I read your post last night and had a few thoughts for you.  @Aaron Montague had a great idea about requesting a variance from the association. I'd suggest showing them this has been a 'hardship' for you and put a time limit on the amount of time you'd like to use it as a short term rental. Also - maybe you could offer to do rentals of no less than 1 week to avoid turning it over every few days.

Secondly, wondering if you could structure some sort of rent to own situation where the monthly rent is increased and a portion of that goes to the buyers  downpayment (maybe an extra $200/month so rent it out for $1,400) if they end up purchasing it within a certain period of time.  (That way you'll get some help up front with the cash flow, and you might be able to avoid paying Realtors fees to sell it.)  Worst case scenario if they don't buy it they forfeit the extra they paid in rent and you are free to sell it on the market then...

Not sure if this would work for you - but wanted to put it out there.


Your feelings about wanting to make a profit and your margins compared to your purchase price are irrelevant here. What you do should be based SOLELY on whether your investment (time and $$) is best put to work in this townhouse or in an alternative instead. The only relevant facts I see are the data you have in front of you today: -You've got ~$13k in equity today -You can never refi at Fannie rates (allegedly) -Before 2021, you have to sell or pay $150k cash. - You're not cash flowing today - You won't cash flow in the future From my chair, you're just sitting on a bomb with a 6 year fuse. I love to see the creativity of some of the suggestions, and God bless if you want to invest effort to try to make those happen. For me, that sort of thing has too high an opportunity cost, looks ok on paper, but seldom gives returns worth the effort unless you enjoy investing your time that way. Your options are: 1. Sell it in a couple years. Mess around with short term rentals or trying to get higher rent to fix your cash flow, and hope appreciation works in your favor. Every day is one less day on your six year fuse, but one more day of appreciation. 2. Sell it now. Move on and invest your efforts in something that could be profitable. I bought an HOA home at the top of the market too, so I say all of this with empathy.

I would find the best agent in the area and try to sell it for 149K.  I would interview agents now.

You are 13K out of pocket, so an unsecured loan may be a good option there.  The problem with any gain over that scenario, is you start running into taxes on the "depreciation re-capture".  Sure if your house sets bid up to 154K, you take the extra 5K, but it likely ends up with only 3500 or so.  If you try to chase that extra money, you will likely greatly increase your carrying costs.

Hi Chris,

Instead of listing your unit through a broker you could use a flat fee listing service.  $299 gets you into the MLS and more.  Instead of paying 3% to a listing broker.  You need your own lock box.  I do not use an attorney I draw up my own deed and use standard P&S etc.  I offer the selling broker 2% instead of 3% but it is your option.  This could save you thousands$$

I have used omegalistings many of times and have had no issues.


@Christopher Triolo

I don't know your market area, but I can tell you that you have a HUGE asset that I'm not sure you are aware of. You as a seller are a real estate agent's dream!  You are rational about what your property is worth and you understand the challenges. Surprisingly this rationality is far more uncommon than you may suspect.

I am an agent in Vermont.  I am seeing your post because I have the keyword "Vermont" tagged.  I work full time with sellers and sold more properties than any other new to the bussiness agent in vermont last year. Here is my thought- When I was starting out 2 years ago I was HUNGRY! I was also driven. I would have taken you on for a token compensation and also for the buyer leads I would get off of your property. I would not try to find the "best" agent to sell for you. The best agent is going to have plenty of income and no need to take on reduced commission clients. I would try to find someone newer to the business who is trying to grow their bussiness and who has  DRIVE and time. There are a lot of agents out there. You may have to interview several agents and you will likely hear "no" more than once. 

Knowledge is power. I think having an inside look at how the real estate industry works you will be able to sell this unit without problem. I hope this helps you. Were your unit my unit and your predicament my predicament this is what I would do: 

Step one: Call the main line for all the major firms in your area ( Century 21, Keller Williams, Coldwell Banker, Smaller Local Names). Ask- "Who is your principal Broker?" "What is his her email?"  Tell whoever you get on the phone " I have a property for sale and a difficult situation on my hands and I want your broker's recommendation on the best agent to pair me up with". Trust me the office and the agent will be more than happy to provide an email for you. You are a potential client. You are money calling. The brokers job is to foster the success of agents at the firm. They will hopefully give you an honest and good recommendation of who is your best bet.

Step 2: Write a template email. Much like the blurb you wrote above explaining your situation and your rational. Send it to the head broker of all the major real estate firms that service your area (and any small ones!) Say you are offering out an  A) A 4% commission ( 3% MUST got to the buyer broker who brings the buyer to your property) and B) the ability to refer you out to an agent in Vermont for whatever referral fee they are able to negotiate when you buy. You are further compensate the agent by by letting them refer you out to the buyers agent that you use in Vermont to buy your next property. These referral fees can be as high as 30% of the next agents commission. Your agent gets paid just by referring your business to the next agent. For you it is no more money out of your pocket. You are simply redistributing the money other people will make. Make sense?

Ask the broker if there is an agent they would recommend to take on you and your listing. Offer a 3 month listing agreement. This lights a fire under the agents' bum to push your property. 

Step 3: Be a 100% ready and easy to sell property. You aren't making them much money so don't make your agent do the grunt work. It sounds like this is already your plan, but A) have your tenant out. Tenant occupied properties are very difficult to show and to sell. Agents don't like dealing with them. Agents don't like showing them. B) Find out what is required to sell in your area and get it all done ASAP. Does the unit need a Fire and Safety inspection?(Required in Vermont) Get it DONE. Don't wait until you go under contract. Do sellers in Massachusetts typically pay for a furnace cleaning and inspection? Get it DONE. Don't wait until you go under contract. Get a receipt for any service performed. Send it to your agent. Do you need to provide the most recent copy of bylaws and financials for the association. (Called the resale package- sometimes there is a fee associated with getting this) Pay the fee, get the paperwork from your association, give it to your agent. 

Tell your agent you want the listing description to include things like "New Paint! Fire Safety Complete! Furnace Inspected. Move in Ready" You want to signal to the world that this is going to be an EASY transaction". 

Buyers' agents are human. They don't want to have to work hard either. If your unit is ready and easy to sell they will show it. Just remember all the hassle and work you take on yourself is work someone else doesn't have to do. You are selling through humans to humans and we are a lazy breed! ;-) 

C) ALWAYS be pleasant and easy to talk to. You want your agent to like you. You want your agent to want to call you. You want your agent to give you their honest opinion and feedback. Let your agent understand your stress and predicament but never take it out on them. I truly believe that communication sells house. Be positive. Be someone your agent see's on their caller ID and picks up on the first ring. It's incredible how much of a difference this can make.

Step 4: Start higher than $159,000. ( Hear me out on this one) If you are truly comparable to the other unit that is on at $169,000 then start at $165,000. Structure automatic price reductions into your listing agreement. Drop $1000 every Thursday for 6 Thursdays. AFTER your first two full weeks on market. Why Thursday? Because buyers are looking to schedule showings for that coming weekend on Thursdays. Price reductions are the best advertising. Even if your agent pays for no advertising this is going to get your listing out to the public better than any advertising campaign can anyway. Why? Because when you drop price all the automatic alerts activate. Almost all websites ( The MLS, Trulia,, Zillow) have price reduction alerts. If a buyer has your area tagged as an area of interest in their online home shopping cart, then they get an email sent directly to their inbox when A) You first list or B) you drop price. So if you get to two weeks on market and interest is dying down--drop price. Automate it with your agent so that they don't have to call and ask you for the reduction. Set it up from day 1.

I hope some of these ideas help. Like many things in life- results follow where energy flows. Put some old fashioned elbow grease into it and I'd be surprised if you can't sell this season. Your market may be soft, nationwide the market is climbing. If your going to sell go for it now and go for it with the expectation that you are an integral part of the process.

P.S. Ask your attorney if there are any tax consequences to being an out of state seller. There are in Vermont. You can get them waived in advance if you know about them and can prove you are up to date on your property taxes etc. Just check on it. It might save you some hassle.

Wow thank you all for the suggestions and ideas! I really appreciate it everyone! @Blair Knowles Thank you for the detailed ideas great advice! I'm still a little bit uncertain about starting higher and then dropping the price in regular intervals. Doesn't that just make it look like there's something wrong with the property? I know when I see a property that's been on the market for a while and it goes down in price, I wonder what's wrong with it... 

But I'll definitely talk that one over with my realtor, thanks for the ideas! 

Again, thank you all for the advice! 


@Chris Triolo 

It's definitely something to consider. Buyers can also see your days on market. If they see you dropping after 14 days by minimal amounts they won't see it as a reflection on the property. My guess is if they are looking that close they will be savvy enough to know that you are playing the game. 

Every market is different. Definitely listen to your Realtors thoughts. They may have differing opinions. Many of us do ;-)

Good luck!

Keep us updated here on BP! I'll be cheering you on.

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