General Question

Bill_Lumbergh's avatar

To sell, or not to sell? That is the question!

Asked by Bill_Lumbergh (1458 points ) July 20th, 2011

I own a 2-bed, 2-bath condo in Virginia, but I now live in New York. I have wonderful renters, who pay me a monthly rent of $1000, and I owe a difference of $325 to cover the monthly mortgage. I am “underwater” on this home, and I am seriously considering talking to a realtors today to assist me in trying to sell my condo, but I am afraid with the economy I will not sell my condo for nearly what I owe. I cannot afford to take out a 10 or 20 thousand dollar personal loan at 7— 8% interest to cover the difference in what I would owe the bank IF my condo even sells within the next 7–8 months. Should I push for my realtors to be super aggressive with the sale of my condo, or should I wait out the “storm” and sell when the housing market recovers? (Please do the math, before considering your answer)

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41 Answers

filmfann's avatar

You are paying $325 a month, essentially, and you will end up owning a condo.
Keep it!

marinelife's avatar

I think (you should consult a tax adviser) that you are better off keeping it.

Adirondackwannabe's avatar

What are the other costs of owning the property, like real estate taxes, any home owners association fees, etc.? And did you live in the condo during the last five years?

Bill_Lumbergh's avatar

@Adirondackwannabe – Condo fees = $210 (part of the difference I am paying), State taxes and property taxes are covered by my escrow, still owe around $165,000 on the mortgage, and I have only lived in my condo for 2 full years. (hope this helps)

Adirondackwannabe's avatar

You’re paying $3900 a year now to keep the condo. Selling it and worst case, taking a $20000 hit and a personal loan would leave you paying $405 a month, or $4860 in loan payments Are you depreciating the condo and claiming it as a rental on your taxes now?

Bill_Lumbergh's avatar

@Adirondackwannabe – No. I had not even consider that as an option. Of course, I am claiming my rent payments as income, but I’m still taking a loss because I am paying the difference.

gorillapaws's avatar

When you describe the losses you expect from the sale, are you including the 6% real estate commission (3% to buying and selling agents) that is paid for by the seller in VA into your math?

My real estate agent told me that this down market could easily last 5 years. Food for thought.

Adirondackwannabe's avatar

@jlee7766 The rental payments are income, but see a tax advisor for figuring the deductible expenses. The principal payments on the mortgage aren’t deductible, it’s just the interest. Ownership fees are deductible, repairs, your travel if you need to go to the property, insurance, etc are. If you sell the property as a rental unit and take a loss you can deduct some of that on your taxes, but it’s probably going to be about $3000 a year that you can deduct.

Judi's avatar

You might want to consider a “short sale” if your loan is a trust deed. I am not sure about the laws regarding short sales in Virginia. In California, on a first trust deed, the bank can not come after you for the difference, but it will effect your credit rating if you do a short sale. In Nevada, the bank CAN come after you for the difference. You may want to consult a realtor in Virginia to see what your options are.

optimisticpessimist's avatar

I would also check whether the property has been increasing in value over the past few years. I live in VA and my house has been steadily increasing since we purchased. Not a huge amount but a decent 5 to 10 thousand a year. If it has been increasing, you can average about how many years it would take for the increase to make you break even on selling the condo. You can then determine how much it will cost you each year to own the condo and determine your net loss.

If the income you get for the property and the deductions you can take even up on your taxes, your only expense is the $325 you pay monthly. If your deductions make you pay less taxes than you would if you did not own the condo, you can subtract the difference and you actually pay less annually for the condo than the seen $3900. If you pay more in taxes than you would without owning the condo, you would need to add the extra amount and that is your actual expenses annually for owning the condo.

Judi's avatar

If you’re not ready to talk to a realtor you can check an aproximate value (like @optimisticpessimist said) on zillow.com. They can be wildly inaccurate at times, but at least it can give you an idea of the trends in the neighborhood.

janbb's avatar

It sounds like keeping it probably is the best financial solution. Any possibility of raising the rent.

learner124's avatar

Keep it…..

JLeslie's avatar

You probably are not losing any money per month, or very little, if you are writing off the loss, and itemizing the property taxes on your tax return.

If you sell, the condo is now an investment property and you can write off the loss when you sell.

You also can try to sell it as a short sale if the entity holding the note is willing. You have to jump through some hoops to get that to happen, it doesn’t sound to me like you will qualify, because it seems like you can afford to pay the shortage every month. With a short sale the bank will eat the loss, but check the laws that exist now if you try this. In the old days the owner still was responsible for the difference technically, but new laws, or in general the common practice is the bank does not pursue the person who is defaulting for the back money.

I think you should keep, unless you just feel like getting rid of it regardless of the profit or loss.

Are you in Northern VA? I thought DC was bounsing back a little. You might want to hold on.

JLeslie's avatar

Oh, about looking up prices, most government property assessors sites now have a place you can look up recent sales. Since it is a condo it is easy to compare, unlike streets with very varied housing. All the sales information is public. Just google your county and property assessor or property appraisser and look for the state government website.

Bill_Lumbergh's avatar

@JLeslie – a “short sale” is out of the question; I cannot afford to take the hit on my credit. I can afford to continue to pay the $325, but I’m paying $3900 a year to keep a condo that I am not even living in! My condo is located in Hampton Roads area of Virginia, and the market for condos in this area is bad.

Judi's avatar

How long is the loan? How old are you? Have you consulted a CPA to be sure you are taking all the deductions you can get? It may not be costing you as much as you think. In the end, you may end up with a fully paid for $1000 (or more by then) retirement supplement. (Unless it’s one of those crappy interest only loans.)

WestRiverrat's avatar

If you have good tennants, you may not want to raise the rent. Having good tennants and taking a small loss is sometimes better than collecting more rent and having tennants from hell.

If you like the tennants and do decide to raise the rent, talk to your tennants and see how much more they are willing/able to pay.

JLeslie's avatar

@jlee7766 Personally I prefer you don’t short sell, but I won’t go into why. However, I will say, just to be sure you have all the information, short selling has a much lighter hit on your credit than foreclosing, but again, I prefer you don’t short sell.

Have you talked to an accountant, or had your taxes done since the time you started taking this loss monthly? Were you renting it out last tax year? You will be surprised how favorable the tax laws are. Goes to the argument in politics, investors get all sorts of loopholes, the rich get richer. I realize you are not rich, just using the expression to drive home a point.

Bill_Lumbergh's avatar

@Judi – I have a 30-year fixed, with 5.5% interest rate. I have already tried to refinance, but lenders are unwilling to give me a loan or a better rate if I do not currently occupy the home.

Judi's avatar

@jlee7766 ; Do you have 30 years left or have you paid it down for a few years? How many years are you out from retiring?

JLeslie's avatar

@jlee7766 How many years do you have left on the loan?

Bill_Lumbergh's avatar

@Judi & @JLeslie – I bought the condo 2008 at $172,000, moved to NY last year, and I am a LONG way from retirement.

Response moderated (Off-Topic)
Judi's avatar

@jlee7766 ; If you can afford to do this for a few years, I would keep paying. 5.5 might look really good after August depending on what they do with the debt ceiling. If you are a long way off from retirement, this could work out in the long haul.

JLeslie's avatar

$3,000×30 years is $90K. You will own the condo for $90K at the end of the 30 year loan, not that I am really expecting you keep it that long, but you could. That is using simple math obviously. I am assuming with tax write-offs the most you are paying is $3k a year, likely less, but you might have a repair now and then, or an empty apartment every few years for a couple of months. Also, it is likely rent prices will go up over time. And I used 30 just because it is easier in my head than 27 years.

You bought it for $172k, but more importantly what was your loan amount?

Response moderated (Off-Topic)
Bill_Lumbergh's avatar

@Judi & @JLeslie – I will throw this wicked curveball into the mix…...I cannot afford to have that home without renters, due to the $1325 I will owe in mortgage each month it is empty. I understand with renters living in my condo, it will make the condo more difficult to sell. Is there any harm in have Relators put my house on the market? Do I have to pay for services if the home does not sell in the timeframe I request?

Response moderated (Off-Topic)
JLeslie's avatar

@jlee7766 You won’t owe the realtor anything most likely. Read the listing contract. Sometimes there is a fee if you cancel a listing. So, if you sign up for a six month contract, and in two months change your mind, or if you don’t like your realtor and want to fire her, that sort of fee can bite you. It is a completely negotiable fee, if the realtor charges it, you can get it removed by negotiating it with her before signing the contract. The only other time sellers get caught paying a fee, but it is really rare, is if a buyer cannot come through in the end to buy a house after all contingencies have past on the sales contract, or the seller changes their mind and a contract falls through. Usually in that case the realtors still get paid. In the case of the buyer not completing the buy, you would keep all the escrow money minus the fees to the realtor.

You can also list for sale and for rent simutaneously with the same realtor, and see what happens.

Some states require a new owner fulfill a current rental contract. So if you have tenants in there the new owner will be adopting the rental agreement when they buy, they can’t just throw out the renters because the condo changed hands. At least in FL you can’t.

JLeslie's avatar

@Judi Please look over my answer though. You are in a different state, so laws might be different, and the OP is not living in either of our states.

Judi's avatar

I agree. Here in California though, I have never heard of a realtor getting a dime if it does not close escrow. (It might be in the contract, but call the broker and make a stink and they usually don’t charge if you have a pretty good reason for canceling a listing.) I know that Realtors do a lot more in California as well. I heard that in some east coast states it is customary to hire a lawyer in real estate transaction and here in California that rarely happens.
The other thing that I would say to look for are “garbage fees” that a realtor might try to throw into the contract. They might be labled as “paperwork processing fees” or something. They are making bank on the commission and you can negotiate those out. Don’t confuse them with the garbage fees that the escrow and title companies try to charge, they are a little harder, if not impossible to negotiate out. (in my experience, in my state.)

wundayatta's avatar

Your cost structure will not stay the same. Your mortgage payments will remain the same, but your rental income will increase over time. In a year or two, your rental income could cover the entire cost of your payments, including taxes and fees. Given that you’re underwater, and your payments are affordable, I’d wait it out. Your main pain will be having to take care of the place, unless you have a service for that.

dannyc's avatar

As a business guy, you have a great investment there. No way the economy will not improve although it may take a while (who knows how long). I would advise my clients to hang on as long as possible. maybe raise the rent a tad, and renegotiate the loan a bit to your favour if possible.

Adirondackwannabe's avatar

Or you could look at strictly as an investment. If you put $3900 into an IRA, CD, Mutual Fund, etc, how long would it take to make your savings grow to the the market value of the condo today? Plus there is the potential of some increase in market value.

JLeslie's avatar

@Adirondackwannabe Good way to look at it.

gorillapaws's avatar

@Adirondackwannabe if you invested $3900/year at 8% interest over 30 years you’d have $516,393.25

I’m guessing the condo wouldn’t be worth that much in 30 years, although the calculation assumes the expense will be constant (i.e. @jlee7766 never raises rent), but also ignores the expenses of repairs, and months when the property is vacant.

JLeslie's avatar

If she gets 8%. if she is the type to invest the money.

Thammuz's avatar

Keep the condo, you never know when you might need another source of income and, even with the 325$ you pay, you still get 675$ more than without having the condo altogether.

augustlan's avatar

[mod says] This is our Question of the Day!

thshade's avatar

Ok if you have not figured it out by now I can lend you some help. It took 30 years for the housing bubble to reach where it was in 2006. The economy will not even recover in the next 5 years, let alone the housing market. The banks needed to be bailed out because of faulty mortgages like this. In the past 30 years, the income level of people has only risen 7% while the housing market has grown 1300%. It will probably never reach the peak we saw back in 2006 for atleast another 20 years. 5 years is more optimistic and exaggeration. Yes it will grow in value, but by how much now that there are new laws that are in place? You can wait until the renters stop renting and then hike the prices to help curb costs. If you really want to keep ownership that bad. And it might be a good idea too because it will take a few years to pay off that 20000 you are upside down on. Rent only goes up in price every year as well. My suggestion, and take it with a grain of salt, is just to hold onto it pay the difference if it isnt too much strain and use it for income in the later years, and when you start getting those medical bills in your later years you can always turn to this to sell it, or take a loan against the income the property will provide. In that time, the house will rise in value if there is still an economy. And I agree you should seek a financial advisor with plenty of experience and a tax professional to see the best way to help curb costs. Good luck

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