Look at it this way. You are losing 700 per month. That's $8400.00 per year I don't know the math on what you paid for the property but let's just say $300,000k to make math simple, given the 40% haircut in value you state in your title, your property is now worth $180k. That leaves a difference of $120,000. I would estimate it will take at least another 12 years to reclaim that value.
So here are the down and dirty facts.
In a short sale the worst possible hit to your credit will make it difficult (not impossible) to get significant financing for about 2 years. After that, it is like it never happened.
Over 12 years you will lose about $100,800 ($8400 x 12 years) paying into the negative cash flow of the investment, not to mention the time spent dealing with tenants and vacancies.
Finally you have the $120,000 in negative equity to make up over the next 12 years.
If this were a friend telling you about their situation, what would you advise them to do? To me the answer is pretty clear but it needs to be clear for you! Good Luck.
I don't know you but based upon your question you are probably in your late 20s or early 30s. There is NO doubt that real estate will come back, particularly in San Diego. However depending on where you live that could take up to 15 years to get back to 2005 values.
Here is some simple math
Here is you. (sample numbers used)
Home value today is: 200k (-40% already calculated)
Home loss is: $700 per month
Home value in 2005: $335,000
You owe 335k your house is worth 200k and you are losing $700 per month in rent.
Here is your new neighbor
Buys house for: 200k
with FHA loan has payment of roughly: $1050
In 15 years guess what.
Your house is back to $330,000 your neighbors has climbed to $330,000. He just made $133,000 and is putting his kid through Harvard Medical School. You just broke even and are now going to be saddled with more loans or tell your kid to start practicing golf or tennis everyday.
You are probably now just getting enough rent to break even.
Your neighbor who has moved on to a bigger house decided to rent the one next to you and is making $700.00 a month in free cash flow after his mortgage payment.
Who do you want to be?
There are a lot of shall I say, less than informed agents and advisors out there that don't know anything about basic finance and business. Nor do they know much about real estate. In fact if you ask them how a house is built they will stare at you like a deer in headlights. Half the people that are giving you advice right now, are probably bankrupt and or in foreclosure themselves. RUN AS FAST AS YOU CAN away from their advice.
Don't sink your family ship. Even the best loan mod, still won't take away that $140k in negative equity and guess what..... 85% of the applicants get turned down anyhow. If this is a rental property and it sounds like it is, you don't qualify.
I am including a link below to the HUD site that let's you know if you qualify or not.
Also if it is between a short sale, foreclosure and deed in lieu. Always go with the short sale. I am the CEO of a Real Estate company that has handled over 500 distress situations in the last 2 years so when I am telling you this it is from real life experience not theory.
Case in point. My most recent short sale had a ZERO impact on the sellers credit rating and his trade line indicated that the debt had been settled. He is now shopping for a house and is eligible for a 3.5% down payment loan, 2 MONTHs outside of his short sale.
I know this sounds ridiculous, but because of our Country's current political and financial position this is the way things are right now.
You are in an opportunity window that you will not be available to you in the next 3 years so you better take it now!
MY TEAM HAS OVER 100 PRE-LISTED FORECLOSURES AND WE ARE THE LISTING AGENT! - Please Email Me If you Are Looking For A Foreclosure In San Diego. Over 30 of them are FHA/VA Approved and Fully Renovated!
Hope this helps!
Patrick A. Hale, CDPE, RSD
Short Sale & REO Listing Agent
"The Best Way To Predict Your Future Is To Create It"
Keller Williams Realty
Toll Free: (866) 538-6057 I San Diego: (619) 309-7883
Mobile/Text: (858) 539-6803 I DRE License # 01777558
Office: 4370 La Jolla Village Drive, Suite 400
San Diego, CA 92122
SHORT SALE EXPERTS WITH A MISSION TO:
"Help Over 360 Distressed Home Owners Avoid Foreclosure"
If You or Someone You Know is in Financial Distress Visit: http://www.SDRealEstate360.com
So yoiu are willing to :
Let your credit go bad
Willing to have all your credit cards and insurance premiums increase
Are secure in your job and don't feel this will effect your job or the ability to look for a new job
The possiblity for the bank to come after you for the 60% of value you have lost via a deficency if you let it go to foreclosure.
My question is why let the bank control your outcome? You can limit the losses and potential loss or deficency by working with the bank. The first thing I would do is contact bank to see if you can structure a fixed rate loan with a better payment. Then if that works, great. However, if that does not work, see if you can structure a short sale reducing the possiblity for a deficency or at least an amount that you tried to reduce the loss.
First Weber Group
Certified Distressed Property Expert
Even though the property is an investment you may qualify for a loan modification if you want to keep it and ride out the market. The next best option would probably be a short sale as it is less damaging to your credit and a more responsible approach then just walking away. If you opt for a short sale - choose an agent who is experienced in these transactions and has had some success with short saling investment properties as it can be a little more tricky than your average short sale. You have a genuine and documentable hardship so I can't imagine the short sale would be a problem if that's the route you choose.
Best of Luck to you whichever option you pursue.
Carole & Greg
All the best!
Ryan Smith from Temecula, CA
IF all else fails, sell it. I always recomened to my clients to try and see what the bank can do first rather than jumping on the short sale wagon.
Sapphire Realty / San Diego
Calculate your inflows and outflows and along with improvements, depreciation and decide if this investment property is meeting your goals.
Perhaps you could do a 1031 exchange?
What would you invest $700 in and what is the expected ROI?
Why don't you call the bank... try to get a super low fixed rate loan modification. I don't know all the details on your loan but purhaps that would take care of your current situation. I will tell you, you have to continually call and follow up however, the end results may be worth it to you. Call HUD if you need help, they are there for free to thelp you through the process.
If that doesn't work then consider a short sale, it will look better for you down the line all away around should you ever decide you want to purchase again.
You are stepping into a joint legal/tax minefield with a surf board strapped to each foot!
ALL of the SPECIFICS of your situation must be identified and reviewed by a RE Attorney and CPA to make a prudent decision based on the collective advice of both professional disciplines. To do otherwise is simply foolish.
You may be able to convince the bank to refinance, a modification will be difficult most are tailored toward the home being your primary residence.
Somebody suggested a short refinance again these are tailored toward primary residences but it never hurts to try.
Short sale or deed-in-lieu-of will for sure leave you holding the bag for the deficiency it is very rare that you find a bank overlook deficiency on an investment property. Also note short sale and deed-in-lieu-of are forms of foreclosure and as such will affect many things you do not even realize, it gives any credit related companies the freedom to raise your rates especially credit card companies, your insurance company will raise their rates (yes they charge more for people with bad credit records), and many companies look at credit when considering candidates for jobs or promotions these days.
At least with short sale or deed-in-lieu-of you can negotiate how the deficiency is dealt with, with a foreclosure you have no say, the bank will attach your primary residence, your pay, you name it, and foreclosure will destroy your credit for what seems like forever.
You need to get on the phone and start negotiating with the bank, they do not want another foreclosure and do not be afraid to remind them of that. I think your best bet is get a refi that reduces that $700 deficient, you are not going to eliminate it, and continue to rent the place. The market will come around and the need for rentals is ever increasing becuase of all the foreclosures that are occurring leaving families no where to live slowly increasing rental rates.
Buy a home after foreclosure expert
Let me know if I can help you in any way!
Joan Wilson (Realtor, SRES, Ecobroker)
California Cool 4 Sale
Prudential California Realty
Direct Phone: 760-757-3468
License # 01341483
Know Your Rights Home Affordable Foreclosure Alternatives (HAFA) Program
Find Your Dream Home:
Find Foreclosures: http://CaliforniaCool4Sale.com
Co-author of â€œShould I Short Sale My Home?â€ Advice on what options are available.
You may have options other than short sale.
You should definately look into a loan modification or a short refinance to reduce the negative equity in your home.
Depending on the lender getting out of the option arm shouldnt be difficult.
A short refinance could get rid of all of the negative equity and get you a new loan at 90 - 95% of current market value. If your still current I would try this definately before you short sale.
With the criteria you mentioned you are a great candidate for a Loan Mod or a Short Refinance.
I am happy to give a free consultation.
Lenders do loan mods on rentals, I am doing one right now with Wells Fargo. Also, the fact that your upside down and in a loan that most lenders want to get out of I think your chances would be very high for approval .
Realtor Legal Assistant
I work Hard to Keep my clients IN their Homes
925 699 5051
The only thing you may need to watch out for is the forgiveness of debt, which could bring tax consequences. If you've pulled out a bunch of cash from refinancing that property in the past, then this could be a problem. You may be able to claim insolvency if this is case so check with your CPA.
Shoot me an email if you have any other questiions if you want to discuss this further
View the status of the short sales that we are currently processing here: http://status.whissselrealty.com
There are many consequences and probably a deficiency judgement where you could owe the bank the money anyway. There are legal and tax situations involved too. It is not a simple yes or no.
Please see my Foreclosure Avoidance web site for 11 Free Reports which talk about the consequenses and the the benefits of doing a Short sale...if you qualify.
Click here</a> to see the 11 FREE Reports.
Check out the site then call my cell at 760-212-8225, after 7:30AM Sunday.
We use attorneys to negotiate with the bank. They have more arrows in their quivers than do agnets.
Dennis Smith, ABR, SRES, e-PRO, CDPE, RealtorÂ® Lic #00476662
Certified Distressed Property Expert
Taylor Place Real Estate, Carlsbad CA
760-436-0087, or cell at 760-212-8225