Home Selling in San Jose>Question Details

Donnie, Both Buyer and Seller in San Jose, CA

I need out!!!

Asked by Donnie, San Jose, CA Wed Mar 16, 2011

So we have outgrown our 2 bedroom townhouse and are ready for a single family home.
The problem is we owe about $398k on a property worth $300-320.

We would like to do the right thing and rent it out. This would leave us eating about $600 a month when you factor in HOA and property taxes.

When I look at losing $7200 a year with no hopes of recouping that money it just doesnt make sense from a business/financial perspective.

Do I have any options to keep our townhouse and rent it and minimize those loses?

From what I understand we wouldnt be able to qualify for a short sale as we dont have a hardship.
One lender mentioned renting it out and then claiming a hardship saying we cant afford the loses from the rental?

Any other options?

It is really stressful because we can afford a much larger home and really need one but this thing is like a dead weight bringing us down.

Help the community by answering this question:


Terri's idea was pretty good. Maybe you can purchase a second home and retain your condo as a rental.

Accomplishing this could require finesse. Some of our lenders, simply will not finance another property if you're upside down on your current property...they won't allow negative equity. A couple other lenders we work with will allow it under certain conditions. They're shooting their industry in the foot, if they allow people to buy better homes and let them walk away from underwater homes/mortgages.

If you have the financial capacity to afford a house, there are fix-n-flip investors that bought and rehabbed foreclosures, who may sell you the house with seller financing, provided you make a down payment. Then after 6 months or 12 months (depending on lender), you could refinance the home and pay off the seller financing loan. This may work because lenders don't like giving financing on properties that have been flipped recently. Once you get into the new house, you can then decide how to maintain your townhome.
1 vote Thank Flag Link Tue Mar 22, 2011
Building on Don's excellent point, renting isn't all that bad an option. I own multiple rental properties and a few are now in the same negative cash flow situation your potential rental would be in; during the housing bust, rent dropped along with housing prices. If you do rent out your townhouse, you may be able to deduct monthly losses from the HOA, property taxes, and mortgage payments; annual depreciation; and rental-related business expenses like travel, meals, supplies, etc. Sometimes, the tax savings can be enough to equal or surpass your entire negative cash flow. During the housing boom, many investors saw that as an acceptable investment.

Since I don't know your specific situation and am not a CPA, I can't advise you. So, I can recommend you speak with an experienced property investor and get some good advice from a CPA. You can even call the IRS help line to walk you through the rental deductions.
Web Reference: http://www.archershomes.com
1 vote Thank Flag Link Sat Mar 19, 2011
Stay where you are.

As Terri notes, if you go ahead with a short sale, then you won't be able to buy the single-family home you hope to.

Check with an accountant on what your after-tax losses would be if you rented it out. They'd likely be less than what you're calculating. Rental losses (in most cases, especially if you're renting it at market rates) are tax deductible. That's not accounting advice; check with your accountant. You'd also be able to take depreciation on the property. Depending on your tax bracket and a number of other factors, that $7,200 loss might possibly shrink to $4,000-$4,500. Not great, but perhaps somewhat more bearable.

However, if you rented it out, you might have a problem with your debt-to-income ratio when you try to get a new mortgage. Check with a mortgage broker or lender to get a preliminary idea.

What you might end up doing is renting out your townhouse and then renting a single-family home. That way, you wouldn't have to get a mortgage on your new home and (depending on your market conditions) might actually save you some out-of-pocket cash each month.

You also could try a lease-option on either property . . . or both. Offering your townhouse as a lease-option might boost your rental income a bit--maybe $100-$200 a month. And you might even be able to find a potential buyer that way who'd be willing to pay a higher figure for the property in 3-4 years. As for your single-family home, if you negotiate well, you might not end up paying any more, but you might be able to lock in a decent price if/when you purchase it.

But first check with a lender and see what you might qualify for if you did rent out your current home. And check with an accountant to get a better handle on what that would actually cost you.

Hope that helps.
1 vote Thank Flag Link Wed Mar 16, 2011
Don Tepper, Real Estate Pro in Burke, VA
This question was posted Mar, 2011.
Donnie has solved this problem by now.
0 votes Thank Flag Link Thu Jan 9, 2014
You should contact your lender and see what options they have for you from refinance given that your home qualfies for a Confiming loan amount.
0 votes Thank Flag Link Thu Jan 9, 2014
I was just looking through old post and I noticed yours. If you were not able to refinance at the time of the post, I can certainly help you out now. You can call me at 408-352-5147 or email me at AGreer@themortgageoutlet.com. You can check us out at http://www.TheMortgageOutlet.com. I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
0 votes Thank Flag Link Thu Aug 15, 2013
Hi Donnie, I've been thinking on your question for a while. Meet with a qualified tax adviser. It may be possible to justify your rental loss on your annual income. They can also discuss with you if purchasing another home and if there are additional tax benefits. Also, with a lender to see if you can qualify for your next home while keeping this home.

Owning a home should not be a stressful situation. Arm yourself with knowledge and it will lift the burden off of you.

Hang in there.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Tue Mar 22, 2011
Have you tried refinancing? If Fannie Mae or Freddie Mac own your loan, you're likely eligible for their special refinance programs. See freddiemac.com and http://www.fanniemae.com/loanlookup/

If you can lower your payment, then renting may not be a bad idea. If you do rent and it's costing you money, you likely won't be paying income tax on the rental income, however the losses cannot offset your regular income from your other employment.

If you choose to short sale, you may be eligible to purchase with an FHA loan without waiting 3 years, under specific circumstances. HUD Mortgagee Letter 09-52 addresses this issue. Basically:

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
• take advantage of declining market conditions, and
• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
Borrowers are considered eligible for a new FHA-insured mortgage if
• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.
Web Reference: http://www.monumentfin.com
0 votes Thank Flag Link Sat Mar 19, 2011
I wouldn't listen to that realtor. Contact an attorney that specializes in real estate. Not one that specializes in distressed property. You need an unbiased legal opinion.
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Sat Mar 19, 2011
Sorry to hear about your situation. It all depends on your lenders. Do you have one or two loans? You have to be very persistent in talking to them. You want to get to the loss mitigation department and see if they can help. Have you tried applying for a loan modification? That would be a good start before you try renting it out. However, the loan mods will only happen when you are occupying the property.

With reference to a short sale, as long as you are current throughout the short sale process you can qualify for a FHA loan the next day. But you cannot have had a previous BK or foreclosure on your record. FHA is the most flexible with short sale guidelines.

Hope this helps and good luck!
Web Reference: http://www.merrittnoel.com
0 votes Thank Flag Link Wed Mar 16, 2011
Donnie, I'm working with clients right now in a similar situation. They came into my office, met with me, talked to my lenders and qualify to move up. It will depends a many factors, more than we can answer right here.

If you short sale now purchasing in the near future will not be likely.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Wed Mar 16, 2011
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