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Old 05-16-2008, 12:11 AM
 
3 posts, read 11,081 times
Reputation: 10

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Hi All,

I could really use some help from folks who have successfully negotiated down rates and/or managed to get some kind of write-down on their mortgates without a full-refinancing (if such a thing is possible).

Let me give you the back story:

During the height of the housing boom, we invested in 3 rental properties (2 new, one pre-owned). Due to downturns in the areas they are located (metro Atlanta), a ton of foreclosures have occurred nearby, which has driven rent and sale prices down enormously, not to mention the desperate developers who are unloading new houses at pre-2005 prices lately.

So it's getting harder to rent without taking a monthly loss, and even if we are willing to take that loss, it's getting harder to find renters, period. One of the homes has sat empty for many months despite rent reductions that are lower than the local asking rate. Two of them fortunately have decent tenants for now.

We had planned on an average vacancy of 2 months per year, and with property management, maintenance, etc the properties are upside down annually, but we had hoped to make the losses back through depreciation writeoffs and long term appreciation on the homes. Average vacancies are up closer to 4 months/year, monthly rent is down 20% and falling, and maintenance is never as cheap as you would think.

Add to that the fact that our income is going to be cut in the near future, and we find ourselves in a position where we're rather start negotiating with our lenders NOW, rather than wait until things get too far gone to find a compromise that both the banks and we can live with.

(We don't want to walk away from our responsibilities, but might consider claiming that as a negotiating tactic if the banks are completely obstinate. However if all three units go tenantless at the same time, we may be in real trouble after 3-6 months. We did our best to prepare for a market downturn, but this is ridiculous!)

The homes were purchased at 189K, 236K, 269K and we put down payments into them at 10%, 20%, and 10% respectively. Our morgage holders are Countrywide and Citibank. The first house has a second mortage, the second has a HELOC (untapped thus far) and the last house also has a second.

We've tried putting 2 of them up for rent, lease-purchase, and/or outright sale to no avail, the market's just dead. Investors are having a field day picking up bargains like vultures over fresh roadkill.

Does anyone have any constructive ideas on how to approach this issue with the banks so that we can lessen the impact?

Thanks very much for your feedback.
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Old 05-16-2008, 08:40 AM
 
3,698 posts, read 10,220,486 times
Reputation: 2609
Did you buy the rental properties under a corporation, or is it all tied to your individual credit? Did you protect your personal home and your personal assets before going into the property management business?
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Old 05-16-2008, 09:16 AM
 
3 posts, read 11,081 times
Reputation: 10
Quote:
Originally Posted by sean98125 View Post
Did you buy the rental properties under a corporation, or is it all tied to your individual credit? Did you protect your personal home and your personal assets before going into the property management business?
Sean,

We bought them ourselves with our personal credit, then formed an LLC and transfered them over.

The properties are managed by a property management company which we pay a percentage of rent to for finding and processing renters and general management /maintenance. We are out of state so it's not feasible for us to take over the property management company's duties (or we certainly would to save on costs).

Thanks for any ideas/help you can give.

MK
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Old 05-19-2008, 04:47 PM
 
Location: Pennsylvania, USA
5,217 posts, read 4,261,191 times
Reputation: 908
Quote:
Originally Posted by MonkeyKing View Post
Hi All,

I could really use some help from folks who have successfully negotiated down rates and/or managed to get some kind of write-down on their mortgates without a full-refinancing (if such a thing is possible).

Let me give you the back story:

During the height of the housing boom, we invested in 3 rental properties (2 new, one pre-owned). Due to downturns in the areas they are located (metro Atlanta), a ton of foreclosures have occurred nearby, which has driven rent and sale prices down enormously, not to mention the desperate developers who are unloading new houses at pre-2005 prices lately.

So it's getting harder to rent without taking a monthly loss, and even if we are willing to take that loss, it's getting harder to find renters, period. One of the homes has sat empty for many months despite rent reductions that are lower than the local asking rate. Two of them fortunately have decent tenants for now.

We had planned on an average vacancy of 2 months per year, and with property management, maintenance, etc the properties are upside down annually, but we had hoped to make the losses back through depreciation writeoffs and long term appreciation on the homes. Average vacancies are up closer to 4 months/year, monthly rent is down 20% and falling, and maintenance is never as cheap as you would think.

Add to that the fact that our income is going to be cut in the near future, and we find ourselves in a position where we're rather start negotiating with our lenders NOW, rather than wait until things get too far gone to find a compromise that both the banks and we can live with.

(We don't want to walk away from our responsibilities, but might consider claiming that as a negotiating tactic if the banks are completely obstinate. However if all three units go tenantless at the same time, we may be in real trouble after 3-6 months. We did our best to prepare for a market downturn, but this is ridiculous!)

The homes were purchased at 189K, 236K, 269K and we put down payments into them at 10%, 20%, and 10% respectively. Our morgage holders are Countrywide and Citibank. The first house has a second mortage, the second has a HELOC (untapped thus far) and the last house also has a second.

We've tried putting 2 of them up for rent, lease-purchase, and/or outright sale to no avail, the market's just dead. Investors are having a field day picking up bargains like vultures over fresh roadkill.

Does anyone have any constructive ideas on how to approach this issue with the banks so that we can lessen the impact?

Thanks very much for your feedback.

I didn't read the entire thread ..but I can tell you from experience.. tyring ot negotiate when you are NOT behind is truly and uphill battle. All it really does is put in the system that you DID contact them BEFORE there was a problem and have been "proactive.." so go ahead and do it.. but dont' expect to get anywhere.. i didn't. I didn't even get anywhere AFTER I was late (I have an ALT A ARM that i can no longer afford.. not subprime).

There is a websie NAFPP.org.. or the national association for foreclosure prevention specialists. You can legally witout a forecosure get out fromunder your house.. or in your case houses.. responsibly. I't swhat I'm now donig..

And I fought for over 8 months to try and get my current lender to fix the terms.. got nowhere!! OH well.. but someone connected with this website or orginaztion in your area can hlep.

good luck
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Old 05-20-2008, 06:56 PM
 
Location: Cary, NC
1,036 posts, read 3,685,869 times
Reputation: 504
As the last person posted, trying to negotiate when you are on time is not impossible but is close to it. Most of the major negotiations take place when the file has been moved to the "non-performing" or other department.

Then they try to figure out what they can do to save the loan, the theory I guess is that while you are paying then take everything they can... once you are behind then they may as well work to cut their losses.

Sorry to hear about your troubles, those are the risks that come with investing. Glad to hear you at least put money down and had reserves and a plan. With too many it was 100%, stated income, no assets, ARM loans with no business plans that should never have been funded.
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Old 05-23-2008, 03:19 PM
 
3 posts, read 11,081 times
Reputation: 10
TristansMommy and rcarrillo,

Thanks for taking the time to write back and tell me about your experiences. It's a shame that lenders won't let you take action before things are in a bad way; everyone might be better served if they did.

MK
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Old 05-24-2008, 02:07 AM
 
Location: Los Angeles Area
3,306 posts, read 3,452,615 times
Reputation: 592
Quote:
It's a shame that lenders won't let you take action before things are in a bad way; everyone might be better served if they did.
Why will they be better served? If you they can get another 6 month of full payments out of you and then do some sort of work-out after that time then they are better off as they got more money out of you.

Regardless, I would be surprised if lenders started to do a lot of write-downs on investment properties especially if there was a down-payment. In many cases it just makes more sense to foreclose.
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