One of my buddiest is going through a rough time and trying to keep afloat on his mortgage payments. He's got little to no cash, mostly maxed his CCs, and is thinking about just letting his property go into foreclosure and walk away. He asked me for some advice but at this stage in my education, I don't know enough to help him. Any advice on the following situation?
Property value: ~450k based off zillow
Other homes nearby in nicer conditions are selling for 500-550K but he probably needs to put in 20-30k to get it up to that and he has no money.
We're thinking about the following options:
1. Rent out a room and try to stay afloat
2. List for above market and try to break even
3. We rehab his place using my funds and sell/split profits, IF ANY... I guess I risk losing money this route.
4. Point him to a short sale realtor?
Thanks for any advice
What's his job/income situation? How much are his payments? Total monthly expenses?
What happened to him?
Why is it hard to make the payments now?
Well he's his worst enemy when it comes to money. I guess what started it all was he bought his house 5 years ago and his wife left him 2 years after leaving him the house and mortgage.
His saving grace is he has a decent job income around $100k. However with a 400k mortgage, CC debts, and bad spending, even 100k is not enough.
I'll working on getting some actual monthly numbers from him. I have my doubts he knows for sure.
So the mortgage isn't the problem, it's poor money/spending management. Doing something with the house will only address a symptom, not the cause. I'd suggest going through Dave Ramsey material with him and see if he is willing to take control over his finances and spending. With $100k income, he can turn the ship around fairly quickly.
Hey Wesley, Carlos here. Short Sale Agent in Georgia and Newbi Investor. Your freind has a "Hardship", which would definitely qualify him for a Short Sale, and the best part about that is that its always better to Short Sale then to be foreclosed on. Foreclosure will stay on his credit report forever, Short Sales show up as a dept that was paid as agreed, or settled. He may even qualify to recieve a Relocation Bonus, anywhere between $3k -$30k. it allows the Seller to purchase again after two years. There's also the option to refi or a wraparound mortgage. Whatever he does a foreclosure is never the way to go. To see Short Sale Agents in Your area,you can go to www.CDPE.COM and click on find an Agent. I hope this helps. All the best!!! Your a good freind!!!
If he can catch up any late/back payments keeping the wolves away you could consider the options you mentioned. Actually, I'd lean toward a short sale, list above the payoff and you can go down.
Probably needs to address his personal finances with a professional and maybe a shrink, divorce usually means for a younger guy, footloose and fancy free, dating and toys, again, I speak from experience but didn't go broke or get in trouble at it (LOL).
He might also look into a loan modification if he's in default, get the payments down. Consolidate the CC debts and perhaps you and he might do a few RE deals for additional income.
Debt is rarely a root cause problem. Spending is almost always the real source of financial troubles. A $400K house on a $100K salary means he's stretched on the house payment. Add in overspending (evidence by running up credit cards) and its only a matter of time before things go south. IMHO, you should absolutely not sink a dime into this money pit. Help him out, yes. A loan mod might help. Selling this house and moving into a $1000 apartment would help, too. Spending less than he makes is really the underlying problem and if that's not cured, there's no hope.
I think he should get some agents in there to look at it and give him a realistic look at what he could sell it for. Even at $450K, he'll only be $20K or so short. Make the lender would accept a promissory note for that shortage. That would be like a car loan, in terms of payment.
I'll second Dave Ramsey. If your friend really wants out of this mess, he needs to do something like Dave advocates. If he's unwilling to do that, you won't really be able to help him.
divorce usually means for a younger guy, footloose and fancy free, dating and toys
Do we have the same friend? This is him exactly.
Thanks for all the great advice and I will try my best to relay this info. CPDE.com and Dave Ramsey stuff is news to me also. Thank you!
I looked at their web site, and I'd take that CDPE designation with a grain of salt. Its nothing more than a training class for RE agents that results in this "certification". They provide their own certification. That certification tells you the persion with the certification went to this class. Nothing more. Its a two day class that generates between 6 and 14 hours of continuing education credit for the agent, depending on the state.
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