How to Pay Off Mortgage That is Underwater (loan, property, Arizona)

[thndrcloud]

Let it go or take your pissing match outside.

[EZICIT]

Originally Posted by akrobat

Again, I appreciate all the posts.

- Reading through all the posts, I don't see any mention of a Reverse Mortgage on your NEW home - which is what I thought you were asking about.
- As has been stated, getting a Reverse Mortgage on your existing home would be impossible.
- A couple of clients who were in a situation similar to yours, bought their new home for 'free' (Not literally), by getting a Reverse Mortgage to buy the new home, then renting out the 'old' one.
- If you go with that plan, you'd probably be better off with a qualified, professional, property manager.
- And, you can expect a negative cash flow for a while.
- By-the-way, a Short Sale can be a disaster. If your lender does not cancel your mortgage AND the Promisory Note at closing, you could be on the hook for the "Shortage" for the next TWENTY-FIVE YEARS!
- There are already dozens of 'Investors' buying up 'Short Sale Debt' for pennies-on-the-dollar. My understanding is that they plan to wait a while for a recovery, then sue you for the shortfall.
Hope this helps . . . . .

[mortimer]

Originally Posted by thndrcloud

Let it go or take your pissing match outside.

Since the original question was:

(2) rent the home out

Any arguments about whether renting out the home or not to
are entirely appropriate. It is up to the reader to either pay
attention to or ignore these posts.

Deciding to rent out one's home rather than sell it is an important decision.
kevcrawford has had success with renting and is also entitled to argue his
case - even if he is wrong.

If you don't like it, just scroll down to the next post like an adult.

In the mean time, I'm going to enjoy myself posting my stuff and if you
don't enjoy seeing me win the argument, then you should just ignore my
posts. If you are a real baby, you can put me on 'ignore.' Lots of people
do that with posters that they don't like. How you could not like my posts
is beyond me, but feel free to use that handy feature of city-data.

[Ashburnite]

I would say just stay in the house or rent it. If you'll be living generally nearby you can do what needs to be done as far as being a landlord. Make sure everything in the house is in good working condition and repairs are up to date. Do a good background check on your potential tenants. Set aside money each month to save for possible repairs to the rental property and you should be okay. I've rented several houses and never had issues with landlords, all of whom were individuals not companies. If you have good, responsible tenants you shouldn't have any major problems.

Or just tough it out and stay in your home. If you're interested in doing so, you can make some repairs or upgrades so that when the market improves you'll be in a good position to sell as far as condition of your property.

Regardless, you should talk to a good mortgage lender/expert and see what your options are. Asking here is good for ballpark opinions but asking an expert would be best, naturally.

Good luck!

[mortimer]

The owner clearly stated: "I'd like to move"
"the neighborhood is starting to turn worse"
"don't want the hassle of being a landlord"

What's the house in FL worth? Let's say it's $200k.
Again: "the neighborhood is starting to turn worse" so
what is the likely monthly rent? $1,000? Sssssure it is ...

What kind of property taxes and insurance will they continue
to pay? $300/month? Who knows? Assuming that the houe
never needs any repair work - ever - they get a whole
$700/m or $8,400/y gross rent on a $200k asset.

That's a whopping 4.2% return as a best case. You can
buy a 10-year Bill and get nearly that risk-free ( and never
have to visit your asset to see that it hasn't been trashed ).

There is a story about an elderly man who walked into a brokerage
house in 1958 with some RCA stock to sell. He originally bought it in
1929 - before the crash - for $100 or so per share. Immediately after
the crash, it was worth in the $20's. By 1932 it was down to $3/share.
He finally "broke even" in 1958 if you ignore inflation and such "trivials."

Had he put it in a savings account and collected 5% interest ( which
could do in those days ) his $25 in 1929 would be worth about $100.

I watched people do this with their dot-com stocks in 2000.

I see people doing this today with penny stocks. ( "I'll sell it as soon
as I break even." ) That's a great way to build a retirement plan.

Recognize your loss and move on.

It doesn't matter what you originally paid. It matters where it is going.
ask yourself: Would you bet $200k ( or whatever the current value of the
property is ) in new money to be in the landlord business right now? Today?

-o- If yes, go for it.
-o- If no, recognize the loss.

People that rent their former residence for the purpose
of waiting to break even are in denial.

[Ceece]

I would stay put. If you move what's to say your new neighborhood won't take a turn for the worse and put you right back to square one? Unless your neighborhood threatens your personal safety I would just suck it up. Every place has problems. Besides, if you don't have enough money to get out of the house you certainly don't have enough to purchase another one. Maybe you should rent, it makes it easier to move around when you get tired of your living arrangements. Home purchaces, especially these days, are long term things.

[Ashburnite]

Originally Posted by mortimer

...What's the house in FL worth? Let's say it's $200k. Again: "the neighborhood is starting to turn worse" so
what is the likely monthly rent? $1,000? Sssssure it is ...

Which is why the OP should consult a professional to see what is best in his specific case.

[Maursce]

Honestly, I would probably rent if I really was that concerned about the neighborhood. Hire a professional Property Management company if you really do not want to deal with it and I believe in the long run you will come out ahead. I know Florida was hit much harder than we were/are in Northern Virginia because of second homes and investment properties. However, our market climbed significantly last year. In our area Property Managers charge a 10 - 20% fee, for general fix-it visits and oversight. Whatever supplies are needed, (i.e. tank float for a toilet) or professional services HVAC etc... are additional. The up side is that in 3-4 years you will probably be at or close to a position to recover your investment. Then sell it and take the tax hit if you do not decide to do a like property exchange and purchase an investment along the water where you may actually want to live. But the point is that after you calculate the Management fees and taxes and other the related expenses you will be far below the $120,000 loss that you mentioned. In addition the Management fees are deductible and so is the renter depreciation and related expenses and interest and so forth.

[thndrcloud]

Originally Posted by Maursce

The up side is that in 3-4 years you will probably be at or close to a position to recover your investment

Assuming that the rent is enough to cover the mortgage over those 3-4 years AND that the market recovers in that time period. If not then the OP is out the difference plus the property management fees plus any repair costs during the rental period.

[akrobat]

Thanks to all who have replied, I greatly appreciate all those who took the time to give their thoughts.

We are a household divided now. I would like to stay put until we can sell at a more manageable loss (I've given up on breaking even or coming out ahead). My husband wants to move on and rent the house. Everyone has given pros and cons for each and now it is up to us to reconcile our differences and make a decision.

For those who asked, based on the rental comps in the area, we would be able to rent the house for a couple hundred more than the mortgage. We would be on the hook for taxes and insurance. We can afford to pay it (would save the minor surplus from rent for repairs, etc.). We worked it out and essentially, it come down to paying a steady loss each year for several years or one big loss by selling the house now. My husband uses this as a reason to rent. My concern is getting that bad tenant that trashes the house because then we are out even more money. I need to research tax benefits/implications though our AGI is likely too high for any real big tax benefits.

As I said, we'll have to talk it through and come to a decision we can both live with.

Regardless, I have a new question. No matter what we do, we still have a house with a mortgage that is more than the house is worth. I want to know what the folks out there think of throwing extra money at the principal to lower the overall mortgage. On the one hand, I think that it would be like throwing money into a black hole but on the other hand, if we're going to come out at a loss anyway, wouldn't it be better to pay the loss in increments now (and less interest) than in one big swoop at the end? I am not a financial person at all so if anyone wants to help tease this one through I would really welcome the advice.

In case this is relevant, the extra money we would be using doesn't really have another purpose except as savings for a new down payment or to bring cash to closing when we sell this house. We fully fund our 401ks up to the dollar amount allowed by the IRS and fund traditional IRAs as well. Our only debt is a car note that is almost paid off (and at a very low rate) plus student loans locked in at very low rates. If I don't use the money for the principal, I'm going to put it in CDs or an interest bearing savings account because I am risk adverse and the situation with the house has already added enough stress in my life.

Again, any thoughts are much appreciated.