Upside down on Rental, seeking guidance

15 Replies

Hey guys - let me start by saying I'm not proud of this one, but faced with the reality and seeking guidance on how to navigate..

I bought a brand new 1BR condo in Baton Rouge, LA as an investment property back in 2006 for $120K. At that time (as many of you probably know) it was easy to purchase a home with a 1st+2nd mortgage and zero-to-minimal down payment without PMI...so that's what I did. Unfortunately over the years with market downturn, hurricanes, etc. property values dropped and many other owners/investors with neighboring units either foreclosed or did short sales on their condo units...further driving value down to half of what I originally bought it for. Currently it's valued around $55K-$60K, and I still owe $105K (due to prior int. only loans). I have it rented and fortunately it's been rented majority of the time I've owned it, but I'm still in the red each month and wondering what to do. I'd love to just get rid of this property and wipe my hands clean, but I really don't want to come up with an add'l $50K out of pocket. I've thought about short sale as well, and although don't want a credit hit wondering if it's a viable solution. Here are all details:

-Orig. purchase price = $120K

-Current value = $55K-$60K

-Balance owed (1st & 2nd mtg) = $105K

-1st mtg pmt = $685

-2nd mtg pmt = $180

-Monthly HOA = $400 (I know, this is freakin ridiculous)

-Monthly rental income = $747 (net), [after 6% prop mgmt. fee on $795 gross rent]

-Net monthly cash flow = -$518  (I haven't been paying the HOA for many months now, so I'm currently operating at a -$118/mo loss, although the overdue HOA dues are just piling up)

Goes without saying this is a bad situation...what should I do and what are my options?

Would you guys consider a short sale? (If the bank needs to verify income levels, I'm not sure I'd qualify as we can technically pay it off...I just don't want to)

Any help/feedback is greatly appreciated...thanks in advance!!

      @A.K. Ahuja Greatness is on the way and my advice would be to request a forbearance from the mortgagee and to just hang tight a little while longer as NESARA and GESARA are incoming.  For more info check out these two Youtube channels for all their posts on NESARA as both are covering it extensively.  

      Santa Surfing Beach Broadcast

      Pimpy's Investment Chat

      This is Trump's Transition to Greatness!

      @A.K. Ahuja Man this is a tough one. I think a lot of it depends on your personal financial situation.  Since it sounds like you're financially stable and can afford it, I think I would just sell it and pay off the difference.  I know it would hurt to drain savings, but I've always heard that no investment is better than a bad one.  It would be worth it for me just to have a clean slate and the knowledge that you can move forward from that point.

      All that being said, we are in an interesting time and @Brandon Johnson brings up some good points.  You may very well be able to get some mortgage forbearance and may be eligible for additional assistance moving forward.  If you're willing to stick it out, you can maybe get through it until the value comes back up.  I still lean toward getting rid of it though just because I personally wouldn't want to deal with the stress of it hanging over my head. 

      If nothing else, it sounds like this has been a good learning experience for you, so hopefully that counts for something. Good luck moving forward!

      Is this in another country? I can’t believe there is anywhere in America where real estate is 1/2 of the 2006 prices. Vegas was hit pretty hard Down to about 1/2 of previous highs and even we are over 2006 prices, not 1/2. Care to tell us what city so we can invest? Or is the city itself dying?

      This seems too far from workable. If your credit has been destroyed I'd work the short sale or deed in lieu. Eventually the HOA's going to come after their money as well. Probably stop paying the mortgage as well. Where did the 2nd come from?

      Thanks guys for the comments/feedback so far!

      @Brandon Johnson - I'm not familiar with NESARA/GESARA so will look into those, thanks for the heads up!

      @Amy Verges - my current thinking is similar, would love to get rid of it but an add'l $50k out of pocket is a hard pill to swallow. Other challenge is that I don't even know if we can find a buyer, as several other units in community are also on the market.

      @Bill Brandt - this investment property is in Baton Rouge, LA. Unfortunately I think my particular condo community has been hit harder than the larger zip code, and definitely more-so than Baton Rouge overall. One recent stat mentioned the foreclosure rate in this zip code (70802) is 4x national average, and my community is definitely pushing that average up. My prop mgr recently told me that the community feels like a ghost town - many units are vacant and a large percentage of those have just been abandoned by owners for foreclosure or short sale. That's a big factor in driving the prices down to 1/2 of orig. purchase price. 

      @A.K. Ahuja now that you have posted on a public forum “ I can pay it off I just don’t want to” I don’t think u are going to be very successful at negotiating a short sale. Banks read.

      Maybe buy the ones at 55k to 60k for cash then sell this one for whatever....you can likely use the tax loss to cushion further gain if u believe the others have bottomed out.

      “ buy when there is blood in the streets, even if it’s your own blood”—one of the Rothschilds

      @A.K. Ahuja  

      My biggest recommendation would be to research this subject I am presenting you before you make any moves to give up the property at a big loss or damage your credit, unless you simply want the property gone.  If you see the evidence of what is happening now, there are big changes coming to the banking and financial system and there is likely some "assistance" heading your way.  I believe the mortgages in foreclosure and forbearance will be the first to be assisted.  

      if you were me you would have already called the mortgage company and asked for a forbearance due to financial hardship.  If you mention the words Corona or Covid19, they can't deny your request.  At the very least, this buys you some time, but the fact is people are already reporting very unexpected things happening to their debts.

      I never thought I would advise someone to do this, but looking at all the different ways you might solve this, I think deed-in-lieu or foreclosure is the best option. Short sale will affect your credit just the same, and would take much longer. The HOA fees alone make this obstacles almost impossible to overcome. You are not going to be able to

      Allowing foreclosure, or accelerating it (Deed in lieu) has negative effects, not just on your credit report, but also on  self esteem and optimism. But you're probably already dealing with the last 2. Just letting it go will allow you to get a fresh start. You have the money to start over, and sounds like you are ready for it. The sooner you let this property go, the sooner you can start fresh and better. 

      @AJ Felix 70802 is neck & neck with one other zip code for the highest crime area in the city.  Here are a couple articles discussing the crime issues in the area. One from 2014 about the specific zip code and a local program being initiated called Baton Rouge Area Violence Elimination (BRAVE) which was specifically targeting the crime issues in 70802 & 70805. Unfortunately the program folded in 2017 during which the violence rates began increasing again.  Historically, Baton Rouge property values overall steadily increase and have continued to do so. The stability is what I love about the market.  Unfortunately this property and specific location is outside of the norm for the city.

      https://www.wafb.com/story/25909323/murder-rate-soars-in-70802-declines-in-70805/

      https://www.theadvocate.com/baton_rouge/news/crime_police/article_242a4900-9c8d-11e7-af96-9f6d031d17f0.html

      Thanks guys.

      @Account Closed - HOA was not anywhere close to $400 when purchased; I believe it was less than $100. Over time there have been HOA increases due to covering costs of significant damages to property from hurricanes, etc. A couple of add'l increases were proposed over the years, which I always opposed...but they got passed as I believe most owners didn't put in a proxy vote and/or just didn't care & walked away. Frankly, a $400/mo HOA for this place is absolutely absurd!

      @AJ Felix - in addition to what Amy stated & similar to my prior response above, the decline across this zip code is one thing, but my immediate condo community has experienced a much more severe decline primarily due to many owners settling for foreclosures or short sales. That's what's really had the biggest impact - most of the owners were part of an initial investment group (incl. myself) when these units were initially built. Over time, most have written off their losses and essentially abandoned their units...driving down values while also adding to more supply of vacant units, preventing home values to go back up.

      I know this is probably an unpopular opinion and I definitely don't know your exact situation, but if I could afford to, I'd probably keep it and buy more property to mitigate my losses and just wait (I love Jonathan's quote above about blood in the street).  Your $500 a month loss is a lot less when you factor the loss on your taxes, depreciation, tax write off for interest, loan retirement, etc.  I'd keep my credit intact to fight another day (knowing full well that this albatross was making it possible).

      Obviously, if you actually can't afford it, the problem resolves itself as you have no options...