Property Q&A in La Puente>Question Details

Tanya, Home Owner in La Puente, CA

Should I sell the rental property?

Asked by Tanya, La Puente, CA Mon Oct 3, 2011

I currently have a rental property in La Puente, CA. Because the rent doesn't cover the mortgage and HOA, I'm paying about $400 additional each month. I can't refinance because I don't have any equity. I bought it in 2004 for $270k with 6.125% 30 years-fix but the current value is about $150k. I still owe about $195k. Right now I have no problem with the payment but I really need to know if it makes sense to keep it or should I try to pay it off sooner with some extra money. I bought my current house the beginning of the year for $550k at 4.25% 30 years-fix and have been paying $500 a month additional. If I should keep the rental condo, should I better use $500 toward this property until the home value gets better to refinance or sell? Thanks in advance for your advice.

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I agree with Emily. Really a matter of outweighing the consequences.
0 votes Thank Flag Link Mon Oct 3, 2011
You're in a much better situation than most, being that you still own a primary residence. So, after doing a short sale, you're not running around trying to find a rental property & trying to prove to a landlord that you're worthy & dependable to make their monthly mortgage payments. Yay!

I have another client who is in your same boat, they're losing about $400/mo on the rental property which is worth less than what they owe, and they still have their primary residence. They've decided to do the short sale.

There's no getting out of doing a short sale & it not impacting your credit. What really hurts your credit more than the short sale itself is missing payments & having those compounding 30 day lates stacking up.

BUT you can recover from it in less time than you may think. You won't be plagued by a super low credit score for 5yrs. In fact people who do a short sale after missing as much as 15 payments, CAN see their credit rebound & be in a position to purchase again (should they want to) within 2yrs. under current guidelines w/ an FHA loan.

Good News for Short sales, with new laws passed in January & again on July 15th, is that if the bank(s) agree to do a short sale, they CANNOT pursue you in the future for a deficiency judgment & this INCLUDES investment properties, like yours.

Tax Consequence: Because this is an investment property & if you cannot claim that this property WAS your primary residence for 2 of the last 5yrs, you will be subject to the IRS stating that the Negative balance you short the bank with, they will treat as "income" & tax you & whatever your tax rate is. If your negative balance at the end of the day is $120K, the IRS will say "You MADE $120K & owe us that tax".

If you can prove to the IRS through working with your CPA that you are up the proverbial financial creek, you may be able to file form 982 & try to prove a case for insolvency & possibly reduce or eliminate your tax liability. Keeping this property is more than just losing $400/mo, you're still trying to add water to a sinking ship.

If you'd like to talk to me more about your situation, please email me DIRECTLY, I don't look back on this same Trulia thread for answers posted after mine.
562-430-3053 c
Realtor Since 1996
Main Street Realtors
Short Sale Expert
0 votes Thank Flag Link Mon Oct 3, 2011
It seems most of you suggest to sell it. The problem is I owe more than than what I can sell. I'm concern about negative impacts on my credit for a short sale. Is there any ways out without a bad credit impact on this? I hope a short sale is the only one way.
0 votes Thank Flag Link Mon Oct 3, 2011
Does not make financial sense to keep or even pay additional funds towards the rental property which is currently a negative asset. A good investment property should have at least 20% equity without having to pay mortgage or property taxes out of pocket. The $400 could be best invested in some other interest bearing investment. You should also seek advise from financial advisor regarding the extra $500 you are paying towards your mortgage.

Your lender may allow for you to pay less than what is owed on the condo if you qualify for a short sale. Keep in mind a short payoff will affect your credit but may still make financial sense. Consult a tax advisor regarding this as well.
0 votes Thank Flag Link Mon Oct 3, 2011
Dear Tanya,
I my opinion the most important question that you should answer yourself first is: does it benefit you to keep the property. The tax ride offs that you are using and all the expenses that you have to cover – des keeping the property benefits you?
Is the property currently rented? Will you be able to proof a hardship to the bank to have them accept a short sale pay off of the loan after you sell the property.
Will be happy to evaluate your situation with you and advice you about all the details.
Teresa Krawiec
Realty Executives Cornerstone
0 votes Thank Flag Link Mon Oct 3, 2011
Please call me, I'm a Broker in La Puente and know the area very well. I also have property for sale in La Puente. 626-712-7391
0 votes Thank Flag Link Mon Oct 3, 2011
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