I'm late to your thread, and you have a number of good responses here. I'd add the following:
Hire a real estate attorney if you don't already have one to review your contract and see if there is either a way for you to walk away from the contract with smaller losses than your entire EM deposit OR whether or not your contract can be assigned to a different buyer.
There may be someone buying in the same building who'd prefer your unit (for amenities, view, etcetera). There may be owners (and potential buyers for your unit) already in the same building who may want to either decrease or increase the size of their unit (by moving from their current larger/smaller unit to yours or by expanding their unit to either side or above or below).
Alternatively I'd suggest hiring someone who specializes in rentals and making sure that your rental projections are correct (or very close to the current market). If you could mitigate your losses and bring them down to less than $500/mo, then you may be able to zero out on resale even earlier.
There are also some companies that specialize in providing corporate rentals (both long and short term) who might be able to assist you if you are "forced" to close the purchase.
Ask the seller to seller finance that property, and explain your situation. Since the seller already has collected $50K (which IMHO is way too much for an EMD--10% IS a down-payment not an EMD), you shouldn't have to pay anything more--other than the closing costs and mortgage. If that seller wants to close on that property, then they'll need to be flexible. After all, it's neither of your faults that the market has turned sour for both of you, but you both have to deal with it. You gave a little, so the seller should have to give a little too.
If the seller resists the idea of seller financing, then find out why. Assuming their resistance is because they want their cash now, then remind/inform them that they could always sell that note to a note-buyer. This way you'll have a win-win situation. You'll be able to build up equity, while renting out that place, and refinance later when the market improves.
Yet, you also have another option. Instead of renting out that unit, you could offer to sell that property also offering seller financing. (If you want to know more about this technique, then google on "double wrap").
The seller at this point is holding 10%. If there's no out in the contract the buyer will loose 10% and perhaps more depending on how it's written. The buyer has the 20% down and can get a loan. No incentive for a seller to offer seller financing unless it's at a rate that's great for the seller and bad for the buyer. Most Developers want and need their money now, not later, so any good Attorney for the seller will push a solid sale to close per the contract.
Again, have your Attorney review and present you with your options. Best of luck and hopefully this can be resolved in a way beneficial to both you and the seller.
Check with an attorney to verify contract language and whether or not there are any seller performance issues which can offer you an exit from the contract.
The statement, "Financing doesn't appear to be the issue here so seller financing has nothing to do with this situation, . . ." completely misses the point. The financing IS the issue: although WCG and his wife could work with his current financing options, they're looking for other alternatives. I presented another alternative. Additionally, that statement also misses the point of about seller financing. Although it's true the some buyers who wouldn't qualify for conventional financing might opt for seller financing, other buyers--even ones with AAA credit ratings--might have reasons for why to go with seller financing. For example, if an investor already has 4 conventional mortgages, then s/he won't be able to get another conventional mortgage without first having paid off at least 1 of those mortgages. (Actually, that buyer technically has other options, but I'll restrict my comments here to non-commercial options.) Anyway, that investor might opt to purchase a fifth, sixth, etc property using seller financing.
Also, it's definitely a great idea to have a real-estate attorney to review your contract. Doing this may present you (WCG) more options as Bill and Ken mentioned earlier. In fact, I'd go 1 step further: I'd hire a real-estate attorney who's also a real-estate investor to advise me if I were you. This way you'll receive legal advise from someone who understands the legal impact and motivation for why or why not to do this deal. Yet, I only intended to present another option that you might not have considered: you don't have to walk away, and you might be able to execute this contract (with your attorney's blessing) in a manner that will be a win-win for you and the seller.
Financing doesn't appear to be the issue here so seller financing has nothing to do with this situation. Again, review your options with a competent Real Estate Attorney.
Base on your calculation, it is not a wise investment to keep. There are too many uncontrollable and unknown factors involve such as market condition in 2 years that you "HOPE" it will pick up a litte bit. I am not familiar with Chicago area on where I cannot give you good advice. You rather purchase a property where you could live & enjoy instead of paying rent. Do not ever think of as a loss on your 10% earnest deposit, remember, you still going to purchase in the future, you will make it back as long as you are purchasing real estate in a long term basis.
I had one of my client asked me the same thing in the beginning of the year who had purchased a property in Las Vegas for over $750K with 20% earnest deposit down. I had advised him to cut his loss of $150K after evaluation of potential rental income & loss, potentially selling the property, supply & demand in the area. He now is so glad he did not pursue with the transaction. The area now has dropped 35%-40%, hard to rent and still no one is willing to buy. It was SO, SO painful at the time of that decision but now he could brag about how smart his decision was. You sound like a smart too.
I used to live in one of the high rises in Lincoln Park - what a place. Chicago is definitely one of my most favorite places to live, cold and all! .
From what you have described, you might just want to walk away from the purchase - you will be losing at least $40K, assuming you can rent it out; but if not, you will lose more money in the mean time. It also sounds to me that you will be keeping the house for short term basis (2-3 years is not long term), not a great way to invest in real estate, at least not in the current market.
A couple more things you want to put in the equation is that you can depreciate the house as well as write off rental loss. The other risk is you will be come long distance landlord, which is always more difficult.
Another question I have is whether you can write part of $50K off as a loss in your investment? I am not expert on that, but you might want to check with your accountant.
One more thing is depleting all your savings is very risky, especially in this economy - what happens if you have emergency or one of you lose the job? This is also a great time to buy in California. By locking your 20% savings in Chicago, you won't be able to buy in CA. Maybe you want to look at that and hold on to your house in CA for a few more years to make it a great investment.
So does it still make sense to go through with the purchase?
I will most likely need to sell between 2~3 year ownership, since we need the money to pay down for a house in California.
I am glad you found Nick to help you of the analysis. After reviewing the analysis, you should consider the furture cost to keep the property plus selling the property in 2 years, I think you know what you are doing already according to your message. If all cost add up to be $50K including the depreciation, cut the loss now, especially, you are not going to live there. No investor wants to keep pouring money and have negative on an investment property. No one could tell you what the market condition will be in 2 years, real estate is a long term investment.
Contact me at email@example.com with the unit number and the complete purchase price- I can do a quick market analysis for you including closing costs at a rock bottom sales price to see if the numbers work out in your favor.
Depends- What is the address of the property? There are still a handful of good properties in the South Loop that are selling. You could puchase the property and turn around to sell it at a loss less then $50K.
My office is on Roosevelt so I know these buildings well and will be able to help :-)