I bought a Duplex back in 2004 that has been giving me a negative cash flow of 2500 monthly for the past 2 years.

Asked by Gac, Minneapolis, MN Sun Jan 3, 2010

I bought a Duplex in Minneapolis in 2004, since the market crash the rents went down considerably and now I'm in a situation of a negative cash flow of $2500 monthly. i struggle each month to pay the mortagage company, but lately it hard to make ends meet. I am afraid that if i stop payments they will go after my other investments, wages, my own home, salary, etc. the value of the duplex went significantly down and so far i have paid 2 years of negative flow. i need to stop this bleeding. what should i do? i do not have it on an LLC .

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Voices Member, , Red Wing, MN
Sat Jan 9, 2010
A couple of questions first would be do you live in one half or is it strictly an investment property?
If it is strictly an investment property getting a loan modification is very very remote.
They cant technically come after your non securing assets but what ehy can do is not forgive any difference between what you would get from a short sale or a foreclosure and the amount you owe on the home. Plus the fact that you have assets is going to make them be less likely to approve a short sale.

What kind of equity do you have in the the property, you may be able to refinance to a lower rate and payment.

Also remember that if you short sale or get foreclosed on and it will also lower your credit scores from between 100-200 points. Not to mention you will not be able to purchase another property or refinance your current home for at least the next two years.

If you would like to talk I would be happy to do a free no obligation mortgage analysis for you.
Sean Wait
0 votes
Peter Boyle, , Minneapolis, MN
Thu Jan 7, 2010
You need not worry about the bank attaching your other investments, your home, or your salary if you did not put up any of those things as collateral for the loan. Obviously you would not want to intentionally withhold payment from the mortgage company. But if you reach a point where you just can not make the payment, they have not right to come after your other assets. In fact I would recommend that you call them and request a loan modification to avoid foreclosure and reduce the monthly payment.

If you don’t believe the property will ever perform you may want to sell the property because you clearly can not sustain a 2500 negative cash flow. If the value of your home has gone below the current mortgage balance you should be able to sell the property on a “short sale” with the guidance of a good real estate agent who specializes in those transactions. I have one I could recommend to you. You would not receive any cash proceeds from the sale, but at least you could stop the bleeding. And although a short sale is detrimental to your credit history, it is far better than getting a foreclosure on your record.
0 votes
Rosemary Knu…, Agent, Minneapolis, MN
Sun Jan 3, 2010
Check out HouseLogic.com. It's the new National Assoc. of Realtor's web site that has lots of good info about homeownership. Specifically search for "loan modification" in the upper right corner search box. That will take you to the page for the Home Affordable Modification Program (HAMP). This gives detailed instructions on how to apply for a loan modification. This program is for owner occupied homeowners, but the info would be helpful when you talk to you lender about your duplex.

You will also find a link there to a page with info about refinancing to a lower interest rate. That may be an option, too. Rates are going to start moving up and so a refi would be something you would want to consider sooner rather than later.

Look at the property tax assessment. Is the assessed value reasonably accurate? If it seems way high you could also look into appealing the value in an effort to get your taxes reduced.
Web Reference:  http://www.HouseLogic.com
0 votes
Brad Anderson, Agent, Maple Grove, MN
Sun Jan 3, 2010
If you have a Realtor, have them do a CMA for you to fund out what your investment is worth. After that, it is simple math to figure out how long you can have negative cash flow. As Joel said, use the tax savings in your calculations.
0 votes
Lenny Frolov, Agent, Brooklyn Park, MN
Sun Jan 3, 2010
I would try a loan modification first, if that gets denied I think a short sale may be the way to go. It may be a little difficult if you have significant assets but it seems like the hardship is clear ($2,500 negative cash flow).
Web Reference:  http://www.lennyfrolov.com
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Joel Friday, Agent, Coon Rapids, MN
Sun Jan 3, 2010
Cash flow positive is always nice with a rental property, but remember that isn't always the goal. One of the benefits of owning a rental property is depreciation allowed for your taxes. Make sure your accountant is helping you in this way and this loss may offset enough in taxes to be a positive for you.

As the other answer said though, you must know when it is time to cut your losses and sell. This may be that time as interest rates are low and investors are plentiful. I had sold a duplex in Minneapolis back in 1993 on a contract for deed and that buyer recently sold fairly quickly.
Web Reference:  http://JoelFridayHomes.com
0 votes
Keith Manson-…, , Milwaukee, WI
Sun Jan 3, 2010
From what you indicated it would suggest that a short sale most likely will not be approved because of your other assets, salary and investments. The only hard ship seems to be the reduction in value.

I would recomend trying to get hold of the lender and see if you can modify the loan!

If the modification does not work check out what a sale would cost you. The loss might not be as big you may think. Which is going to be worse $2500 a month for who knows how many years or a loss of $10000 for an example. It will all depend on how long you can hold on and how it will take the values in your area to come back.

You got something that it is best to work out quickly to reduce your exposure.

Good Luck

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee
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