TrophyHusband 0 #1 March 24, 2010 we are trying to sell a house at our last duty station, but are looking into renting. what i can't quite figure out is what the best decision is, financially, long term. if we were to sell it, the money we are currently paying in mortgage, lawn care, utilities, etc. would go into long term investments. if we were to rent, we would fall short of our mortgage by $225/month which would have to come out of pocket. the market where this house is was exploding for 2 years after the rest of the country was crumbling. there are currently far more houses on the market than there are buyers and more houses are still being built. Because of this, I don't think my home value will be increasing any time in the next few years. we are willing to sell at a small loss and just write a check to get out of it, but at what point would we be just throwing money away? only about 20% of our mortgage payment goes to principal, the rest goes to interest, property taxes, and insurance. because of this we are not building much equity. My gut tells me we're better off selling, but i need numbers to verify this. anyone know? "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
skymama 35 #2 March 24, 2010 By saying you're looking into selling at a loss, are you saying you'd do what they call a "short sale"? That is a bad mark on your credit if you do that.She is Da Man, and you better not mess with Da Man, because she will lay some keepdown on you faster than, well, really fast. ~Billvon Quote Share this post Link to post Share on other sites
JohnnyD 0 #3 March 24, 2010 There is no possible way you're going to get a good answer to that question based on the info in the post. Do you use a CPA? If so, that is the person to ask. Quote Share this post Link to post Share on other sites
Harmless 0 #4 March 24, 2010 I don't know much about it, but I know the DOD was paying some compensation for military members that had to PCS and sell a house in this shitty market. Worth looking into if you qualify or not..."Damn you Gravity, you win again" Quote Share this post Link to post Share on other sites
blacklabjumper 0 #5 March 24, 2010 if he sells the property for less than what is owed but writes a check for the difference then it is not a short sale and therefore will not affect his credit. if he does not make up the difference then it would be considered a short sale and that cannot be completed without the approval of the lending institution that currently holds the mortgage. The other risk of a short sale is that in order for the lender to approve the short sale they may ask that the borrower sign a promissary note for the difference or issue a 1099 at the end of the year reporting the shorted difference as income. Also, the mortgage holder may not allow a short sale if the loan is not delinquent and they determine that the borrower has the capacity to pay the mortgage.Rodriguez Brother #1626 Dudiest Skydiver #1962 DPH #-2 Quote Share this post Link to post Share on other sites
blacklabjumper 0 #6 March 24, 2010 KJ, I am a VP for one of the largest banks in the souteast. One of the divisions I oversee handles these types of issues. However there is no boilerplate formula to making this decision. We find that every case is different involving different market conditions depending on where the property is located. Feel free to PM me and we can talk specifics of your situation. let me know if I can be of any help. Blues TomRodriguez Brother #1626 Dudiest Skydiver #1962 DPH #-2 Quote Share this post Link to post Share on other sites
TrophyHusband 0 #7 March 24, 2010 no, it would not be a short sale. we could clear what we owe on it, but there wouldn't be enough left over to cover realtor commission, closing cost, etc. so we would have to write a check to make up that difference. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
TrophyHusband 0 #8 March 24, 2010 we don't have a cpa. i was thinking that someone that knows about this stuff could ask for the details needed to give a good answer. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
TrophyHusband 0 #9 March 24, 2010 you are referring to HAP (housing assistance program). our house would have had to lose 10% from our purchase price for us to qualify. it has not. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
hcsvader 1 #10 March 24, 2010 I don't know much about this kind of thing but if you were to rent the house out at a loss of $225 a month how much of the rent would go towards the principal on the mortgage? It may be worth renting the place out if you are still able to build equity. Again I don't know much about this kind of thing but thats something I would consider.Have you seen my pants? it"s a rough life, Livin' the dream >:) Quote Share this post Link to post Share on other sites
Tiger6513 0 #11 March 24, 2010 Find a good CPA and sit down with them to figure out exactly what you would be able to rent it for and what the tax benefits would be in a years time. Sounds like you can write off 80% of your mortgage as interest on the loan, it may not be exact and in fact it will not help you out month to month in carry costs, but, you may be able to justify keeping it until the market swings a bit in your favor to sell it. Also think about how far you'll live from the property and landlord situation/ renters ect...Travis Roy Foundation. At very least its a tax write off Quote Share this post Link to post Share on other sites
Remster 24 #12 March 24, 2010 Quotewe don't have a cpa. i was thinking that someone that knows about this stuff could ask for the details needed to give a good answer. Do only way to answer this is for you to look at both scenarios, and do a cash flow analysis. And yes, you will need to make several assumption: return on your money (both in the house, and in the market) rise in costs, occupancy rate, etc....Remster Quote Share this post Link to post Share on other sites
BIGUN 1,050 #13 March 24, 2010 Assuming you have to rent for three years: $225 * 36 = $8100 Using the above example; if you have to go to the table with less than the expected rent term of capital outlay, then you're better off going to the closing with a check for the difference. "Short Sale," occurs when a borrower cannot pay the difference between the mortgage loan on their property and the prospective sales price, but the lender decides that selling the property at a discount is better than taking it to foreclosure. All three parties (Owner, lender, purchaser) consent to the short sale process. This agreement does not necessarily release the borrower from the obligation to pay the remaining balance of the loan (deficiency) - and this WILL have a negative effect on your credit report. In addition, even if the lender relieves the owner of the "deficiency" because the lender feels they could not recover the deficiency based on the owner's financials; the owner could find themselves receiving a 1099 at the end of the year for any unresolved deficiencies because; get this - the government CAN view "relief of debt" as income. There are some exclusions to this rule http://www.irs.gov/newsroom/article/0,,id=174034,00.html And, as mentioned, getting with a CPA to plan your exit strategy may be the best course of action. It sounds as though you may be willing to offset the sales price with the remaining balance of the mortgage to get out of the house and make the lender whole. If in using the above example, you can and decide to do this; that avenue WILL NOT have an effect on your credit. It's a full payoff of the note.Nobody has time to listen; because they're desperately chasing the need of being heard. Quote Share this post Link to post Share on other sites
DrewEckhardt 0 #14 March 24, 2010 Quotewe are trying to sell a house at our last duty station, but are looking into renting. what i can't quite figure out is what the best decision is, financially, long term. It's a gamble. Cashing out now limits your losses if things get worse in the future (banks get around to foreclosing on delinquent accounts and selling the property, interest rates go up in the future, there's more job loss, Baby Boomers retire to smaller homes, etc.). I sold my last property at a small loss ($10 or $15K) and was glad I didn't stick around to realize a much bigger one. Quote Share this post Link to post Share on other sites
Nataly 38 #15 March 24, 2010 Depends on whether you think the market will recover, and how quickly (if you think it will recover). You can sit down and do all the numbers, but the reality is that they will be based on assumptions.. Your resulting analysis is only as good as the assumptions you make, so deciding on that basis, you have to also assess what is your attitude to risk.. If you're planing on investing over the long term, you might take the view that over time you will end-up paying off the house, which could be the source of regular income for relatively little work. If the market just keeps going down, you might get more return on your investment if you had realised your losses early on, but there is no guarantee that your alternative investment would be successful.. If you're near retirement and you're realistically never going to pay off the mortgage, making a small (but known) loss might be an acceptable solution.. Just a few things to think about..."There is no problem so bad you can't make it worse." - Chris Hadfield « Sors le martinet et flagelle toi indigne contrôleuse de gestion. » - my boss Quote Share this post Link to post Share on other sites
shropshire 0 #16 March 24, 2010 Torch it for the insurance (.)Y(.) Chivalry is not dead; it only sleeps for want of work to do. - Jerome K Jerome Quote Share this post Link to post Share on other sites
Nataly 38 #17 March 24, 2010 Quote Torch it for the insurance Dude - you should have PM'd that.. Now if he does it everyone will know!! "There is no problem so bad you can't make it worse." - Chris Hadfield « Sors le martinet et flagelle toi indigne contrôleuse de gestion. » - my boss Quote Share this post Link to post Share on other sites
TrophyHusband 0 #18 March 24, 2010 Quote Depends on whether you think the market will recover, and how quickly (if you think it will recover). it will recover eventually, but i'm guessing it will be several years before housing prices outpace the the rest of the financial market. Quote If you're near retirement... how old do you think i am. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
Hjeada 0 #19 March 24, 2010 What is the estimated value of the home, current mortgage payment, and current payoff for the loan?Dudeist Skydiver #0511 Quote Share this post Link to post Share on other sites
TrophyHusband 0 #20 March 24, 2010 the best i can give you as far as estimated value is somewhere around $230,000 according to the market analysis done by my real estate agent. payment is $1426 and payoff is $207,300. at this asking price, we would make money, but we don't have much room to negotiate before we start losing money. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
shropshire 0 #21 March 24, 2010 Quote Quote Torch it for the insurance Dude - you should have PM'd that.. Now if he does it everyone will know!! (.)Y(.) Chivalry is not dead; it only sleeps for want of work to do. - Jerome K Jerome Quote Share this post Link to post Share on other sites
Andy0689 0 #22 March 24, 2010 I was thinking about this on my way home from work because we're facing the same problem with our house here in Georgia. Here are some of my thoughts. Where is the money going to come from for the difference if you sell it now at a loss? Do you currently have long-term investments you make each month that are adequate to reach your financial goals? If you have to cash in investments to cover the loss, you're likely going to be doing that at a loss. Then you'll lose two assets with potential for growth. Is the $207.3k a break-even point for you but the listing price is $230k? I don't see a loss there. You said you're looking for a best long-term solution. I think that would be to hold onto the house if you can afford the loss every month. It's not that much, you can raise the rent some each year to close the gap while your mortgage payment stays the same and you'll get some tax benefits to renting (expenses, depreciation, maintenance, etc.) In the long run, it's value will come back all while you'll continue to slowly pay down the principal and build equity. Equity that someone else is building for you through rent money. Even over 3 years for $8100 out of your pocket, if the house is worth $10-15k more in that timeframe, it's a good investment. In real estate, $10-15 is nothing but in financial markets, it's a lot more. On a $207k house, 15k is only 7%. I'd be surprised if my investments have grown that much in the past two years or if they'll get that in the next 2-3 years. Point is, depending on your investments, there's possibly more potential in the house right now. Sure it's all based on assumptions but so is investing in stocks and funds. Time has shown that the market has grown an average of 10% each year since the Great Depression. Our financial markets and housing markets will get over this in the long term and since you're not close to retirement you have the time. Or get your rig out, just burn the house, dump the settlement and your monthly dollars into the market while everything is dirt cheap and retire like Thurston Howell, III. That would be a lot more fun!Andy I'll believe it when I see it on YouTube! Quote Share this post Link to post Share on other sites
chutem 0 #23 March 24, 2010 Keep in mind that renters don't always pay the rent. That months of no rent between renters is common. That renters can be hard on things etc etc etc...... James Quote Share this post Link to post Share on other sites
Nataly 38 #24 March 24, 2010 Quote Quote If you're near retirement... how old do you think i am. Some people retire early because they have been so uber successful!! "There is no problem so bad you can't make it worse." - Chris Hadfield « Sors le martinet et flagelle toi indigne contrôleuse de gestion. » - my boss Quote Share this post Link to post Share on other sites
TrophyHusband 0 #25 March 24, 2010 the break even point is somewhere between 220 and 225, depending on how much of the closing costs and other shit the buyers want us to pay for. in this market, buyers want the sellers to pay everything. we're fortunate that we have the means to pay the mortgage indefinately even without renters. since this market didn't take a dive until 2 years after the rest of the country, my guess is that it will lag in recovery as well. even with a glut of houses on the market, there is still a builder cranking out houses. he cuts corners and puts no extras on the houses, but he's able to turn out 2200-2300 sf 4 br 2 1/2 bath houses and sell them for prices competitive with 1700-1800 sf 3 br 2 bath houses. these houses are mostly being bought by military families who will be putting them right back on the market in 3 or 4 years. "Your scrotum is quite nice" - Skymama www.kjandmegan.com Quote Share this post Link to post Share on other sites
