Real Estate Help Needed

[John P]

Hey everybody -

My wife and I have a real estate conundrum that is weighing somewhat heavily on us and I'm posting this in hopes that someone will have some advice or an idea that will allow us to resolve the situation. Here's the deal:

We currently own two houses: the house that we are living in and also a townhouse nearby. We lived in the townhouse up until about one year ago when our current house came on the market. It was everything we wanted in a house and we needed more room so we put an offer on it, bought it and moved into it within one month. In order to make things happen quickly we decided not to put the townhouse on the market immediately and instead refinanced the mortgage on it into a one year balloon (with no monthly payments). Our thinking was that this would allow us to take some time to fix the townhouse up and then, once all the work was done, sell it at a better price.

We got the townhouse fixed up and on the market within a few months and it has just sat there since then. We had a couple of people come look at it but never got any offers on it. I think a combination of the falling housing market and the rising mortgage balance (and therefore the selling price) just put our asking price too high.

So a couple of months ago we figured if we couldn't sell it we might try to keep it as a rental. The numbers work but just barely - we'd be able to refinance on a 5 year ARM (interest only payment) and we think we could get enough in rent to break even each month after the mortgage payment, maintenance, etc. This continues to be our current plan, but the main problem is that even if we get a renter to pay what we need in rent we would still only be postponing the problem (i.e., the mortgage balance is not being paid down and so we would still probably have trouble selling it for the foreseeable future).

So my question is this: Does anyone know of anything else we could be doing to solve the problem? The only part of the solution that I care about it getting the impending mortgage payment off of my shoulders. I'll sell it, I'll rent it, I'll do whatever (well, short of burning it down). I'd even give it away if that would take care of the mortgage. In the words of Robert Allen, I'm a serious don't-wanter. The balloon note is due at the beginning of June so we've got about a month and a half now. Any thoughts?

P.S. Wow, long post. Thanks for reading

[hotwired]

I know you said you didn't want the mortgage, so maybe this is moot, but have you done the numbers on getting a conventional, say, 15-30 year mortgage, renting it out then selling it when you retire? Obviously you need to be able to absorb any "negative" cash flow during that time, but realestate has a way of rewarding it's owners over the long haul ....

[Adrienne]

I agree with hotwire

If there is a way to keep it, i would.

OUCH interest only loans are a bad way to go. Your paying and paying and not getting anywhere. I would stop that.

Here is what i would do.

Get a real 30 year loan on the old property. Scale back expences, trips, vacations, eating out, etc.

Right now, you will only be able to rent it out for about what the morgage is, or perhaps a tad less (unless you can sink some more money in it)
Pay your current morgage on your new house. If you can put extra money on it to help pay it off faster.

In the next couple years, as the market bounces back, you will be able to rent it out at more then what it costs you. You will also be able to take some deductions on your taxs with it.

In 10 years if you want you can sell it and you will have eqiuty AND the price the house will have gone up or you can keep it as an income source.

Just my two cents...

Adrienne

[John P]

Thanks for the response guys
I guess I should accept that there won't be a dynamite solution that makes all my problems go away. The answer, as usual, is going to be hard work. So we'll continue with the rental plan and maybe come up with a special deal if we need to go get someone in there.
As far as the mortgage goes, I'm still leaning towards the interest-only loan (at least to start) to keep it from producing negative cash flow. If we could do that for a couple of years, and let the housing market come back around, I think we'd be able to refinance it then into a 30 yr loan. But I will follow your advice and run the numbers on a couple of traditional mortgage plans to see what we can do there.
Thanks again for the help.

[endless]

One question to ask yourself is... Do you want to be a landlord?

Sounds like you wanted to just be out of it and be done. If that's the case, hanging on to it and hoping the market will turn in couple/few years might just be more of a burden if you don't want to become a landlord.

Were you looking to make money when you had it listed? Or did you have it really priced to sell? I always ask my sellers if they want to "sell" their home or just list it. There is a difference.

If you want to get it off your hands ASAP, make connections with some real estate investors. Find your local real estate investors club in your area and make some negotiations. Or find a good agent to market your home.

If you decide to get renters, you can still list your home for sale as an investment property. An investor may buy it and be happy that it's already rented!

Hope this provides some insight.

Richard

[John P]

Hey endless. Good questions...

Originally Posted by endless

One question to ask yourself is... Do you want to be a landlord?

Sounds like you wanted to just be out of it and be done. If that's the case, hanging on to it and hoping the market will turn in couple/few years might just be more of a burden if you don't want to become a landlord.

I do want to be a landlord. One of my goals for the past few years has been to become a real estate investor/landlord so that part of it doesn't bother me. The thing that makes me hesitate in this situation is that this is not how I pictured becoming a landlord. The biggest problem is the cash flow - it looks like we'll be breaking even month to month and that's barring any major repairs that have to be done. If I were actively seeking to purchase a rental property at the moment I would look for one that had a much better chance of producing positive cash flow.

Were you looking to make money when you had it listed? Or did you have it really priced to sell? I always ask my sellers if they want to "sell" their home or just list it. There is a difference.
If you want to get it off your hands ASAP, make connections with some real estate investors. Find your local real estate investors club in your area and make some negotiations. Or find a good agent to market your home.

When we were advertising it for sale we had it listed at our rock bottom price. It was just enough to pay off the remaining mortgage, pay for our advertising costs and pay the buyer's agent's fee (if they were working with an agent).

If you decide to get renters, you can still list your home for sale as an investment property. An investor may buy it and be happy that it's already rented!

Hope this provides some insight.

Richard

That is an excellent idea. We'll definitely keep that in mind as we proceed with it. Thanks for the help!

[Lucas]

Why dont you offer buyers a lease option, that way you get some money up front, payments now for the projected mortgage, and some security knowing that they arent going to trash the place cause they will be viewing it as theit home already. If they backout before they decide to buy, you get to keep their consideration fee, have been paid more than market rent, and you can do it all over, or sell if the market changes.

[annakarp]

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[John P]

We finally got it rented! I got a call from a lady last Thursday who sounded a bit desperate - she just found out that morning that the lease on her current apartment was going to expire Monday and the apartment had been rented out to another tenant, so she had 5 days to find a new place and get moved in. So, she came and looked at the place that night, filled out the application and we signed the lease papers yesterday (Monday) and she got moved in last night.

We ended up doing it as a rent-to-own - she was able to afford the additional rent and she liked that some of her rent money would be credited toward a future down payment. (Incidentally, advertising it as "rent-to-own available" probably doubled the number of people that came to look at it. Good tip there, Lucas.) And we like that we're getting about 125% of the market rent.

The only thing left to do with it is to figure out the financing. We're still not sure which way we're going to go with that, but at least now we have some hard numbers that we can deal with. And having it rented is a huge load off our shoulders - looking at the financing options seems like a blessing now!

Thanks again to everyone for your help.

[Lucas]

Originally Posted by John P

We finally got it rented! I got a call from a lady last Thursday who sounded a bit desperate - she just found out that morning that the lease on her current apartment was going to expire Monday and the apartment had been rented out to another tenant, so she had 5 days to find a new place and get moved in. So, she came and looked at the place that night, filled out the application and we signed the lease papers yesterday (Monday) and she got moved in last night.

We ended up doing it as a rent-to-own - she was able to afford the additional rent and she liked that some of her rent money would be credited toward a future down payment. (Incidentally, advertising it as "rent-to-own available" probably doubled the number of people that came to look at it. Good tip there, Lucas.) And we like that we're getting about 125% of the market rent.

The only thing left to do with it is to figure out the financing. We're still not sure which way we're going to go with that, but at least now we have some hard numbers that we can deal with. And having it rented is a huge load off our shoulders - looking at the financing options seems like a blessing now!

Thanks again to everyone for your help.

Yeah, rent to own is a total win win situation. They get a house with low down payment and not needing an excellent credit score, you don't have the land lording hassle (or have to get a property manager), and in the end, you either sell them the house for the fair market value, or you turn around and do it again.