Upside Down on Rental

10 Replies

I had someone reach out to me this morning with a question regarding their rental property.  Currently, there is negative cash flow by a few hundred each month if you also include maintenance and vacancies into the list below.  This is a distant property so they are paying a property manager $50/mo.  Bottom line is that they obtained their mortgage at the height of the housing boom for $120K and now it is only worth $40K.  They currently owe $83K.  If they sell they will owe taxes on the difference.  Is there a solution that makes sense either way?  If they short sale they will be financially penalized and it will hurt their credit.   Please advise.  Thank you, Lisa

Rent:  1100/mo

Manager:  50/mo

Mortgage:  405/mo

Taxes:  383/mo

HOA: 165/mo

Trash:  25/mo

Water/Sewer:  150-200/mo

CORRECTION:  Current rent is 775/mo.  Much worse than originally reported. 

Originally posted by @Lisa Henrich :

I had someone reach out to me this morning with a question regarding their rental property.  Currently, there is negative cash flow by a few hundred each month if you also include maintenance and vacancies into the list below.  This is a distant property so they are paying a property manager $50/mo.  Bottom line is that they obtained their mortgage at the height of the housing boom for $120K and now it is only worth $40K.  They currently owe $83K.  If they sell they will owe taxes on the difference.  Is there a solution that makes sense either way?  If they short sale they will be financially penalized and it will hurt their credit.   Please advise.  Thank you, Lisa

Rent:  1100/mo

Manager:  50/mo

Mortgage:  405/mo

Taxes:  383/mo

HOA: 165/mo

Trash:  25/mo

Water/Sewer:  150-200/mo

 Short sale or deed-in-lieu.  Really their only options as far as I can see.

Wow. Taxes are $4600 annual on a house worth $40K? Water/Sewer $150/200 per month? How many people live in this house?

Something just doesn't make sense to me with the numbers. With combined HOA/Tax numbers of almost $7K, $775 for rent seems very odd.

If all these numbers are true, and they don't have any other assets, they should probably seriously consider some kind of financial restructure or a default, unless the bank is willing to take a $45K haircut. I just can't make sense of those figures.

Originally posted by @JD Martin :

Wow. Taxes are $4600 annual on a house worth $40K? Water/Sewer $150/200 per month? How many people live in this house?

Something just doesn't make sense to me with the numbers. With combined HOA/Tax numbers of almost $7K, $775 for rent seems very odd.

If all these numbers are true, and they don't have any other assets, they should probably seriously consider some kind of financial restructure or a default, unless the bank is willing to take a $45K haircut. I just can't make sense of those figures.

I can't make sense out of it either.  I did some more digging today and discovered that average rents for a townhouse in that city range between 1100 and 1300/mo.  So, it seems as though they are completely undercharging.  Although, IF the value has dropped to 40k and the taxes are 4600/yr, would they be able to have it reassessed to reduce taxes?  Or, is that not an option?

Thanks!

Originally posted by @Lisa Henrich :
Originally posted by @Jd Martin:

Wow. Taxes are $4600 annual on a house worth $40K? Water/Sewer $150/200 per month? How many people live in this house?

Something just doesn't make sense to me with the numbers. With combined HOA/Tax numbers of almost $7K, $775 for rent seems very odd.

If all these numbers are true, and they don't have any other assets, they should probably seriously consider some kind of financial restructure or a default, unless the bank is willing to take a $45K haircut. I just can't make sense of those figures.

I can't make sense out of it either.  I did some more digging today and discovered that average rents for a townhouse in that city range between 1100 and 1300/mo.  So, it seems as though they are completely undercharging.  Although, IF the value has dropped to 40k and the taxes are 4600/yr, would they be able to have it reassessed to reduce taxes?  Or, is that not an option?

Thanks!

 I don't know what state it is, but there's usually some period of time in which to file an appeal of assessed value. If they are outside of that window, they should probably consider it on the next go-round. Assuming that they are being assessed at an inflated value rather than what the property is really worth.

I would also question why they are so far below comps in rent based on what your research uncovered. 

Those tax numbers are outrageous. I'd recommend looking into getting a new assessment.

@Lisa Henrich Suggest you not volunteer to join someone else's drama - - look for something else.

I would  like to know how this story ends Lisa Heinrich. We're here any remedy's?

Oh my god, those taxes and HOA fees!

If it was me, I would do the following before I decide to short-sale. 

1. Adjust my rent to market value

2. Get the property re-assessed because those taxes are ridiculous

3. Have my tenants pay for water + sewage+ trash. I think they must be wasting massive amounts of water if its that high. 

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