{Numbers included} You've heard it before: in 2007, my husband and I were young and naive, and desperately wanted to purchase our first home. Not only did we pick a neighborhood that we didn't know well (which turned out to be rough), we bought way too high right before the crash. This particular area was hit hard by foreclosures and we soon found ourselves owing more than the home was worth. So many lessons learned. Long story short, we kept this property as a rental. It does not cashflow; our tenants have paid down the mortgage over the past 11 years and even now, we would barely break even if we sold. It's still not worth what we paid for it. There's a lease in place with renewal in January. Numbers Purchase: $172,000Downpayment: $17,200Owe on (interest only) mortgage: $102,303.33Monthly payment including $100 Principal, Interest, Taxes, Insurance: $1031.45Rent: $1125.00Average Monthly Expenses: $150Cashflow: $-56.45Comps selling ~: $140,000Improvements needed to sell: Likely $10,000 THOUGHTS ON WHAT YOU WOULD DO? • hold it and let it appreciate/pay down down the mortgage? If so, at what point would you sell? • Sell it and just move on? • Other ideas I'm not thinking of??? Thank you, in advance!! Sara

Tic - Toc, Tic - Toc,Tic - Toc,... This is a simple math problem...and I do mean simple. Out of Pocket/Losses needed to recover:Losses per month: $56.45Losses per Year: $677.40Losses over 11 years: $7,451.40Down Payment: $17,200Total to Date: $24,651 (lost)Sell Now and recover losses to date...and make money on invested funds recovered at sale: If sold at $140,000Closing costs/fees: $14,000 (about 10%)After Closing Costs to you (well in your direction): $126,000Total losses to date (Tic - Toc,...): $24,651Balance of loan: $102,303Check to you at closing: $23,697Total NET loss to date (Tic - Toc,...): $954.Cash available after closing to move forward: $23,697 Holding onto Property, Speculating something (like winning the lottery) will miraculously save this deal:Losses every year: $677.40 Impact of holding property by year from losses on usable cash to move forward, Compounded Return of 10% if re-invested & Timeline to Recovering Losses: Year Loss Cash out 10% New Cash Remaining Loss Now $24,647 $23,697 $2,370 $26,067 $-22,2771 25,324 23,030 2,607 28,674 -19,6702 26,002 22,363 2,867 31,541 -16,8033 26,669 21,696 3,154 34,697 -13,6474 27,340 21,029 3,470 38,165 -10,1775 28,008 20,332 3,817 42,082 - 6,3606 28,685 19,665 4,208 46,290 - 2,1527 29,362 18,988 4,629 50,919 2,477 ...(Tic - Toc,...)

Tough situation.... 1. Look at all your numbers again, can you save a few dollars? Refi, tax, maintenance, raise rent etc. Some of your numbers seem a bit high, 2. You did not mention depreciation, that lowers you net cost by a few dollars. 3. If this is an interest only loan, stop paying the 100 principal. You are underwater any way and it will take a long time to make it up. Less the principal payment you are close to even. 4. If you sell, you would walk with under 20k 102k owed + 10k in reno = 112k -140k sale = 28k - transaction costs. 5. Do you need the 20k? 6 Selling would create a huge tax loss. Sale price - Basis = loss. I don't know the rest of you situation, but you would be able to take some or all off your taxes. 7. Do you think the property will appreciate back to your break even point? Rent increase? 8. Does it take up much time to own it? Repairs, collections, etc. Getting it on the market and sold is going to take time and effort. The property will be vacant and require time to do the reno and sell. You would be looking at least 90 days of vacancy. 30 days reno, 30 on the market, 30 days to close (1031x3= 2973). 9. How long has the tenant been in place, do you think they will just stay on? There is no clear answer here. This is never going to be a killer investment, but is getting out now the best option? What would be your alternative use of the money? Would the 20k allow you to do another project that is profitable or do you have enough cash for the next project? Good Luck!

Overpriced, first home bought in 2007 - what to do with it now?

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

8y

Sell and move on. Based on your numbers, even with the equity buildup, you are still going to be negative in the end. You are not going to improve this situation standing in it. Sell and move on. You can recover what you lost here, and make more, in your next series of deals. The longer your stay here, the more you end up losing, and more important...you have lost time that you can't recover...like you can the lost cash you've accumulated thus far. Sell and move forward.

REI is much like Poker, with the most important rule being "stay in the game". Every hand you lose, no matter how much you put into the pot, has not lost you any money...yet. The money you had in your control, is just in a different pile on the table, which can be recovered in future hands as long as you are "still in the game".

You haven't lost money here (yet) because you are still in the game. If you stay in this "hand" (this property), you will be out of the game. Then you will be counting your losses as losses.

Get out while you can, move into the next round of investing, recover your losses from this deal in future ones, and more profit beyond that.

...and please, don't rationalize this deal still can <fill in the blank here with all kinds of rationalizations>. This deal is done. Get out while you can. Move forward, not backwards....there's profit ahead of you...and a cliff behind you.

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Michael Ablan

Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes

8y

Maybe you could sell it as a Rent to own to someone with poor credit. This allows you to ask for more than market, PLUS you get a sizable down payment on it. You can also ask for above market rents as well.

Overpriced, first home bought in 2007 - what to do with it now?

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