I would love your advice. Should I keep this rental property or should I short sell it?
I have a condo in Algonquin Illinois (3 bed, 2 bath, 1890 sq/ft) that I had bought for $265k in 2006. I have about 40k in equity in the property
The current comps for this property are around 185k - 195k. Ten years later the property is still 70k - 80k underwater. This property used to be be my main residence, but I have moved and I am now renting it.
Total expenses = $1835.84
Rent = $1700.00
I'm losing $135.84/month
With this property still underwater 70k - 80k and I am paying an extra $135.84/month. Would you keep this place or short sell it? Its been ten years since the crash and the location is still creeping back. Im not sure how to run numbers to see when, and IF, I will ever break even on this property.
Short sales are tricky, people. It's not an easy answer for an investor to make. Be sure before you decide to move forward on a short sale. This will affect your ability to obtain conventional financing for 3-5 years. You will be limited to hard money or commercial loans to make your future purchases.
In addition, the lender has the ability to go after you for the difference. Not alot of people realize this, but if you sell for $40K less than the property is worth, be prepared to be sent a bill for the $40K after closing AND be prepared to be sent a tax form to treat the $40K as INCOME on your taxes for the year you sold it (which TOTALLY RUINS YOUR DAY!).
There is usually some protections in place for owner occupieds on a deficiency judgment for forgiveness of the balance, but as far as I know, there is no flexibility for investors who short sale to eliminate that debt after closing.....except bankruptcy....which is WORSE because that stays on your credit for 10 years (even though you can purchase again in as little as 2 years).
Foreclosure would be another way to eliminate the deficiency, but even then, depending on your state, and how they secured the debt, that isn't always a given either.
No great options here. Best to consult an accountant and/or attorney for your best course of options that work with YOUR future strategy in mind.
@Jim Armitage No I have not found a solution yet. I am going to hold onto the property knowing I am going to have some capital expenditures coming soon and continue renting it. Realistically, my only expense will either be vacancy and capex
@Jim Armitage No I have not found a solution yet. I am going to hold onto the property knowing I am going to have some capital expenditures coming soon and continue renting it. Realistically, my only expense will either be vacancy and capex
Chad, I recommend you raise the rent to the market. It should cover your mortgage payment now. After selling price over your mortgage balance, then, I recommend you cut the loss.
@Maurice George How do you know your getting market rent? Maybe raise rent a bit, if the current tenant moves out add value by charging a pet registration fee and monthly pet rent, a few bucks extra for washer and dryer hook up. Look at principal reduction over time. As previously suffered, maybe rent to own with an agreed price and charge more in rent, but give buyer a portion of that as credit. Saves you commissions and you collect more cash.
@Maurice George How do you know your getting market rent? Maybe raise rent a bit, if the current tenant moves out add value by charging a pet registration fee and monthly pet rent, a few bucks extra for washer and dryer hook up. Look at principal reduction over time. As previously suffered, maybe rent to own with an agreed price and charge more in rent, but give buyer a portion of that as credit. Saves you commissions and you collect more cash.
OP is a out of state landlord, it is very common for out of state landlord to charge tenant market or slightly below market (I do charge below market for quality tenants). OP charges $1700 two years ago. Assume 5% increase very year (very very common), OP should able to collection over $1874, it is covering OP's mortgage. After OP's mortgage balance below market price, OP will sell the property to get rid of this trouble.