Real Estate Pickle

[Niko]

Quote:

Originally Posted by FUEGO You probably have this under control, but make sure a judgment against you wouldn't adversely affect your law license. Particularly if you are applying via comity to a new jurisdiction. In my jurisdiction, the bar application requires extensive disclosures of suits to which you were a party, judgments you owe, financial disclosures, credit reports, etc.

Thanks, Fuego. I'll go to great lengths to avoid a judgment for a number of reasons. But I don't think it will affect my ticket, especially since a judgment on a note doesn't necessarily involve fraud, deceit, dishonesty, and all the other issues ethics folks watch out for. But it's an issue I'll try to avoid regardless.

[Niko]

Quote:

Originally Posted by Texarkandy Don't feel too bad - we have a recent transferee who lost approx 40k on a house in N. VA to move to our office here in E. TX

I don't feel to bad, I just want to get this behind us with as little damage as possible. Money is money. I just don't want it to get in the way of what's important.

[boont]

Niko,

One other thought on doing this yourself. I currently have two young men that are, with their wives, renting from me. Both are veterans from the recent wars. They don't have children yet, and are both on the GI Bill.

Each is going to school, one in law enforcement and one in the construction trades. Each has income for housing and schooling.

One of these fine fellows I've had for two years now. Great tenants and I'm happy to be doing something for them because what I'm renting to them is prime.

Fortunately or unfortunately, we have tons of these guys looking for housing. So if you can find just one, well they are golden.

boont

[HpRyder]

Quote:

Originally Posted by Niko I'm inclined to try managing myself. I know a handy man in the area. He does his own work on 8 or so rentals he owns. I suspect I could talk him in to covering mine too for a reasonable price.

He's your property management. Since he does his own he knows the ins and out of your area. Use him.

Quote:

Originally Posted by Niko How does one go about picking a "good" management company? Having gone to college in this town, I know of most of the management companies, but I have no clue which are best from a LL's point of view.

You'll have to ask around. Any real estate investment groups in the area? Any apartment associations? Attend a couple of meetings and network there to hit them up for references. Also consider asking at Discussion Board, they are a really knowledgeable group with lots of land lording experience. Ask for a reference in the state your interested in.

[Niko]

Quote:

Originally Posted by boont One of these fine fellows I've had for two years now. Great tenants and I'm happy to be doing something for them because what I'm renting to them is prime. Fortunately or unfortunately, we have tons of these guys looking for housing. So if you can find just one, well they are golden. boont

Thanks again, Boont. I keep thinking about getting a nightmare tenant. I guess I don't stop to think about the 90% of tenants who are good people.

[Niko]

Quote:

Originally Posted by HpRyder You'll have to ask around. Any real estate investment groups in the area? Any apartment associations? Attend a couple of meetings and network there to hit them up for references. Also consider asking at Discussion Board, they are a really knowledgeable group with lots of land lording experience. Ask for a reference in the state your interested in.

Thanks Hp. I'll check that website and ask around town. I do know a couple of realtors -- they'd probably have an idea.

[socca]

If I were in your shoes, I'd call both your lenders, carefully explain your situation, and ask for advice. I doubt that your story will be the first of its kind that they've heard. If they are smart, they will be looking for an equitable partial-lose/partial-lose arrangement rather than a win/lose or lose/win arrangement. I may be a tad idealistic, however. Good luck with this!

[Niko]

Quote:

Originally Posted by socca If I were in your shoes, I'd call both your lenders, carefully explain your situation, and ask for advice. I doubt that your story will be the first of its kind that they've heard. If they are smart, they will be looking for an equitable partial-lose/partial-lose arrangement rather than a win/lose or lose/win arrangement. I may be a tad idealistic, however. Good luck with this!

In theory that is how it should work. But my experience has been to the contrary.

Even though I have two trust deeds, both are held by the same lender (but, unfortunately, have different investors). I've called my lender. The loss mit departments at most major institutions are overwhelmed right now with these types of calls. I haven't found a way to speak with any "decision makers." I can only speak with employees who basically have a script to read. That script says there's nothing they can do until I've tried selling my house for a while and am at risk of losing my home. Since I haven't listed my house and am current on my payments, they won't give me the time of day.

[Bestwifeever]

If I were you I would rent it out and eat the shortage of rent to mortgage payments until your wife is working--you say the move will result in better pay, and you can apply some of the better pay to the house payment shortage.

Then I would save every penny your wife earns once she starts working, until you have an amount equal to the shortfall in the sale price, and then I would sell the house for whatever you can get for it. Personally I would not expect a lender to make a deal with me--I have a feeling that those deals could follow you for a long time, in your credit report, etc.

Your house is just another investment that you have had the misfortune to lose money on. You wouldn't be giving the lenders extra money if you sold for a profit, so why should they absorb any loss? (Note these are generic questions not directed at you personally.)

[Niko]

Quote:

Originally Posted by Bestwifeever You wouldn't be giving the lenders extra money if you sold for a profit, so why should they absorb any loss? (Note these are generic questions not directed at you personally.)

I tend to agree, which is why I am leaning toward what you suggest. Perhaps I'm a bit old-fashioned, but I also believe that one should honor deals made at arm's length, especially if one has the means.

[OAG]

Quote:

Originally Posted by Niko How much do management companies typically charge? Is it a percentage of rent, or a flat fee? Why would there by a 60 day down time? I actually think our finances could muster a 60 day down time. We have $5-6,000 saved now and could have $8-10,000 by YE. Moreover, I (already!) get a raise (7-9%) at my new job effective Jan 1. For a number of reasons that aren't relevant here, we should get a $4-5,000 tax refund in Feb/March. Finally, when my wife resumes working in August, we should have a net increase of $2,500-2,800/mo.

Usually the rate is something like 7-10% of the monthly rent (depends on services provided to some extent). Additionally, some percent of the initial monthly rental charges (maybe like 50% on a 1 year lease up to 100% on a 3 years lease). I said 60 days as a general "rule of thumb" as a time between tenants (cleanup, painting needed repairs, etc., and the major one is the rental market in whatever area; some are slower and some rent up quicker). It varies and can be reduced somewhat if there is a "showing clause" in your lease whereby the property can be shown to prospective new tenants while the old tenants are still there (usually within 60 days of the lease expiration) if they do not intend to renew. Most tenants and RE people are not going to like that clause - for obvious reasons (possible liability and/or loss of property through theft).

I did not see all the responses you got and just responded to you question first. Looks like you may have the situation under control now. Good luck on the new job.

[simple girl]

Quote:

Originally Posted by Niko Thanks for your input, SG. I'm inclined to try managing myself. I know a handy man in the area. He does his own work on 8 or so rentals he owns. I suspect I could talk him in to covering mine too for a reasonable price. How does one go about picking a "good" management company? Having gone to college in this town, I know of most of the management companies, but I have no clue which are best from a LL's point of view.

As someone else mentioned, I would ask around for opinions from the local community, if you can get them. I think it is really tough to know ahead of time how good your mngmt company will be. Ours does a decent job, but it's not stellar. They took a LONG time to fill the unit the last time. They have had repairs done without contacting us first - we just get a bill (we question the costs/charges). They have taken forever to fix accounting errors, and we have to pester them to get resolution. When we ask for something to be done at the property (like an inspection), it seems to take forever to get it scheduled and completed.

We couldn't find a regular realtor or handyman to show the property and manage it for us, otherwise we would have gone that route. I'd say if you trust the handyman you have in mind, you may be better off than going with a big mngmt company where you may be one of many clients. Plus, you are a RE attorney, so you can write up your own leases, etc. Sounds ideal to me!

P.S. Don't forget to change your homeowner's insurance to a landlord's policy, plus, if you don't have one, you may want to get an umbrella policy, too, for the extra liability protection.

[Martha]

Quote:

Originally Posted by Niko I have offered a deed in lieu, but they won't consider it until I've had it on the market for a long time and I'm in default. Even if I market the property and am in default, the DIL is problematic with two trust deeds. My fear trying settle up with #2 is that the will not settle for peanuts once they see my earning potential. They may take their chances in court knowing that I am not judgment proof.

Talk to a bankruptcy lawyer. In the past, I have successfully done this even when there are two mortgages/trust deeds on the property.

[tryan]

Problems is "any" sale - short or conventional - will take MONTHS. I just pulled one off the market after holding it vacant for a YEAR ... yikes! At $1600/month and the house will need to be vacant (add in utility costs) to be sold ... this is not a pretty option. Rent it out, eat the negative cash flow until the market improves. Probably better to bleed slowly in this situation.

Try renting with the option to buy ... you should be able to cut the negative cashflow about in half (by crediting it to a down payment).

That's my 2 cents.

[Texican]

Take your time and think it thru carefully. Remember that if you plan to buy a house in your new location you might have to be in really good financial condition to qualify for a new mortgage. I dont think it will be as easy to get into a new house. Getting into a house over the last few years has been very easy by comparison.

With gas prices coming down so much you might consider a two hour commute for a short time until things settle down. Your family might be able to ease the commute if feasible so as not to make it daily one.

Renting looks like it might be your best option. With the economy in turmoil renters might be easier to come by at least until you can get out of this house. There are many advantages to renting real estate. You can write off a lot of stuff. Find a tax guy to help you out. You may be able to offset some of your new salary increase or at least the tax burden with the rental.

You want to sit down and talk to your wife about delaying school just until the house is sold. Another income may help you get out of it faster.

You have a lot of options and decisions to make. Just take your time and think it thru carefully. You dont need to end up with more debt. That basically negates your raise...

[ChrisC]

Seems like you can finance the negative cash flow from current savings and the security deposit you might take for a rental, for at least a year, easily. I'd check with an accountant to determine how much in tax savings you might get from depreciating and taking a loss on the rental unit, if possible. It could be that if the negative cash flow is tax-affected, you're actual "loss" is not that great for this year. If the rental market could bear future increases for your property, you might be able to hold on to it for a while, without badly twisting in the wind.

[Niko]

I thought I'd update the group, nearly 2 years later, on how all of this played.

My wife and I decided to rent out our place for a while to see what the market did. We found renters who paid $1045 (near the upped end of my estimate) per month. They were good renters who stayed there from December 08 until April 09, when they decided to leave early. We negotiated an "early termination" fee that, frankly, both of us were happy with. They were happy because they wanted to buy another house, and I was happy because I wanted to sell the house that summer and the early fee let me put the house on the market before the summer rush while still covering my mortgage a while longer.

House hit the market, I believe, in late May 09. Had an accepted offer by mid June. Closed around mid July 09. All things considered, we got lucky with the sale process.

In the end, we had to bring $30k to the table to pay off the loans. Rather than walk away or seek a deed in lieu, as I proposed earlier, we paid it all. About 40% came from our emergency fund, 35% from my Roth IRA (penalty free distribution of prior contributions), and 25% from a 0% credit card offer, which I have since paid off. This hurt, but in retrospect I'm glad I chose this route rather than trying to walk away or pay less than I owed.

The whole experienced soured me greatly on real estate ownership, though I shoulder the blame on this one for financing 100% in 2006, at the height of the bubble. Lesson learned. If that's the most expensive lesson I learn in my life, then it's all down hill from here!

[stephenandrew]

Quote:

Originally Posted by Niko I thought I'd update the group, nearly 2 years later, on how all of this played. My wife and I decided to rent out our place for a while to see what the market did. We found renters who paid $1045 (near the upped end of my estimate) per month. They were good renters who stayed there from December 08 until April 09, when they decided to leave early. We negotiated an "early termination" fee that, frankly, both of us were happy with. They were happy because they wanted to buy another house, and I was happy because I wanted to sell the house that summer and the early fee let me put the house on the market before the summer rush while still covering my mortgage a while longer. House hit the market, I believe, in late May 09. Had an accepted offer by mid June. Closed around mid July 09. All things considered, we got lucky with the sale process. In the end, we had to bring $30k to the table to pay off the loans. Rather than walk away or seek a deed in lieu, as I proposed earlier, we paid it all. About 40% came from our emergency fund, 35% from my Roth IRA (penalty free distribution of prior contributions), and 25% from a 0% credit card offer, which I have since paid off. This hurt, but in retrospect I'm glad I chose this route rather than trying to walk away or pay less than I owed. The whole experienced soured me greatly on real estate ownership, though I shoulder the blame on this one for financing 100% in 2006, at the height of the bubble. Lesson learned. If that's the most expensive lesson I learn in my life, then it's all down hill from here!

For what it is worth, it sounds like you guys are people of integrity. Congratulations on getting out of this situation. I think what goes around, comes around---you are due for better things next time you venture into the RE market.

[tryan]

What's nice is: with your credit intact, you can buy back in at a much lower price in a better city and re-coop to loss when things improve.

A short sale or walking away would have left you on the sidelines for a long time.

[73ss454]

With all the people I know ripping off the banks with phony claims on real estate it's good to see you stand up and do the right thing. If the worst thing that happens in life is a loss of 30K on a real estate deal then Life is Good!