Residential Real Estate Agent · Dallas, TX · Member since 2013 · 232 posts · 173 votes
Hello all -
I have a seller with a problem looking for a solution.
She owns two fouplexes in Killeen, TX (Fort Hood, TX) purchased in 2007 with two mortgages on each and has a balloon payment due in 2016 on the second mortgages. She owes approximately $429,500 on both, and I (an agent in the area) estimate the current market value of both at $320,000 ($185,000 and $135,000).
Gross rents are $4100 ($2500 and $1600).
She can't refinance because the fourplexes wouldn't appraise.
She can't sell because it would be $100,000+ out of pocket.
She can't continue renting, sub-2 or wrap because of the balloon payment.
Trying to avoid short selling and anything else that would damage credit.
I have no more ideas, which is why I'm here! Thanks everyone!
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
There's no miracle here. She's made an investment that's $100K in the hole. Had she bought $430K of stock that is now worth $330K, she could sell at a loss. But with leveraged real estate you buy first and pay later. That's the danger of leverage. She's now stuck with a $100K loss that, from what you say, she can't absorb. And she want's to escape that loss without pain. Its not going to happen. If she can't sacrifice the $100K in cash and can't hold onto these properties (which would allow her to sacrifice it a little at a time) then she's going to sacrifice her credit. No other choice.
Does she have other assets she could sell or borrow against to generate cash to do a cash-in refi? I have a mini-storage deal that ballooned a couple of years ago and we had to kick in a pile of cash to do the refi.
A short sale will hurt, but it will hurt less than foreclosures. If there's no other choice, she should pursue that.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
There's no miracle here. She's made an investment that's $100K in the hole. Had she bought $430K of stock that is now worth $330K, she could sell at a loss. But with leveraged real estate you buy first and pay later. That's the danger of leverage. She's now stuck with a $100K loss that, from what you say, she can't absorb. And she want's to escape that loss without pain. Its not going to happen. If she can't sacrifice the $100K in cash and can't hold onto these properties (which would allow her to sacrifice it a little at a time) then she's going to sacrifice her credit. No other choice.
Does she have other assets she could sell or borrow against to generate cash to do a cash-in refi? I have a mini-storage deal that ballooned a couple of years ago and we had to kick in a pile of cash to do the refi.
A short sale will hurt, but it will hurt less than foreclosures. If there's no other choice, she should pursue that.
I am indeed fishing for magic and miracles. I don't myself know what her total finances are, but putting money into a refi does seem like her only option if she can swing it. I'm trying to get more info from her on that option now.
Residential Real Estate Agent · Stockton, CA · Member since 2015 · 36 posts · 11 votes
11y
Is it posible your client could go into a joint venture? Probably not the correct term to use here. But I'm thinking of a partnership structured so that the new entity comes up with the dollars, when the balloon us due. And, in return, a portion of the income is funneled to that entity for a period of time.
Investor · NOVA, VA · Member since 2014 · 99 posts · 101 votes
11y
Brian, from the data you offered it isn't clear what the value of the ballooning seconds are. Do you know this info, as well as the basic terms of her first liens?
Real Estate Broker · Fairfield, CT · Member since 2015 · 312 posts · 231 votes
11y
Second notes are notoriously poor investments as they get very little if you go through with a short sale or foreclosure. Perhaps your owner could shop around the 2nd note to investors in exchange for equity in the buildings. Their returns would still be subject to the debt service on the first notes, but their equity would protect them. If the owner owes $429k on both, but only the second mortgages pose the problem, and say those total $120k, then they would be worth on the market $120k / $320k (current value) 37.5% of equity. Offer 40% to make it attractive and perhaps she can avoid the loss and credit hit.