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I purchased a home at peak in early 2005 in Maryland. I put it on the market aggressively 2 months ago and am finally under contract. I basically "undercut" my competition by at least 25K even though I had more upgraded options in my home.
I am losing the 100K (downpayment and principal payments I put into it the last 4 years). When you include the real estate commission, I have to bring another 30K to the table just to close the deal.
But I'm trying to look at it on this brightside.
1. I sell low, I buy low (I know there was another post on this board about this topic). I purchased another home a couple of months ago in Florida that sold for 140K more in 2006 than I just purchased it (03/2009).
2. I converted the property I am selling in Maryland into a rental property 2 years ago (I got an official 3rd party appraisal at the time for a high cost basis) so I'm getting to write off the entire 130K loss (about a 42K tax savings). I also managed to get 50K in rental income the past 18 months from the property I am selling. So the 130K loss isn't a true 130K loss.
3. I'm a numbers guy. The Maryland property I'm selling is costing me almost $4000 a month (principal/interest/re taxes/insurance/hoa/utilities). If I let it sit idle for 6 months trying to haggle 10-20K more, I would essentially be throwing away 24K in mortgage payments in 6 months.
My realtor and I are on the same page. She thinks more people should think like me. It's a bad real estate market but I think people get their emotions get the better of them. Sometimes you have to take your losses and move on. I think the "safer" areas like Maryland starting declining later than the early states (like Florida, NV, AZ, some parts of California) and are starting to feel the full effects of the housing downturn.
I really didn't want to rent the property out any money (I could have gotten 3k in rent a month...so I was losing around $300-500 a month because you can't deduct principal payments on the Schedule E but I had really good tenants and I didn't want to take another chance on what essentially is a mint condition home with another renter).
Still losing a load of money on the property any way you cut it. But I'm still young (in my early 30s). I can make up the losses in 12 months since I can raise cash in a hurry.
Are there others out there who think like me? Granted you have to have cash reserves/and or have a high paying job to do what I'm doing.
Yeah, my family members (brothers and sisters) do not think I should sell and keep on renting.
However, they are still in this mindset that "no one every loses money on a home" short of death/divorce/medical illness. Maybe because they made huge profits selling their homes in 2003 and 2004.
These are tough trying times.
Realistically I would have to consider renting the home out for the next 3 years to ride out this market. But this assumes unknown variables (such as renting the home out and making sure the renters pay on time) It's not exactly a cheap neighborhood my home in Maryland is located in and rents run high.
So if I decided to rent out for another 12 months, who knows what kind of renters I would get (I've been very fortunate the with my 2 renters who pay on time, take great care of my home). I just didn't want to take a chance. I'd be in the same boat 12 months from now because real estate prices are not going up for the foreseeable future...it will stay flat for a long time.
So I am taking my loss now rather than 12-24 months down the road.
Yeah, my family members (brothers and sisters) do not think I should sell and keep on renting.
However, they are still in this mindset that "no one every loses money on a home" short of death/divorce/medical illness. Maybe because they made huge profits selling their homes in 2003 and 2004.
These are tough trying times.
Realistically I would have to consider renting the home out for the next 3 years to ride out this market. But this assumes unknown variables (such as renting the home out and making sure the renters pay on time) It's not exactly a cheap neighborhood my home in Maryland is located in and rents run high.
So if I decided to rent out for another 12 months, who knows what kind of renters I would get (I've been very fortunate the with my 2 renters who pay on time, take great care of my home). I just didn't want to take a chance. I'd be in the same boat 12 months from now because real estate prices are not going up for the foreseeable future...it will stay flat for a long time.
So I am taking my loss now rather than 12-24 months down the road.
I'm happy for you! It takes alot of wisdom to do that. I wish I could do that but I worry too much about the future. LOL Good luck in the future and I hope things work out for you.
We lost 30k on the home we just sold in Asheville, NC. I was not quite as optimistic as you are about it (ha), but we also felt that it wasn't going to get any better any time soon and that we might be stuck for years and years if we didn't just take the plunge. It wasn't 130k, no, but 30k still feels like a TON of money to me. I wish there was some kind of tax writeoff for non-rental losses - it might encourage more people to drop their prices a little further and move this market along a little faster..
I wish there was some kind of tax writeoff for non-rental losses - it might encourage more people to drop their prices a little further and move this market along a little faster..
I became an accidental landlord. I never intended to rent out my home in Maryland. Except I was traveling a lot for work in 2006/2007 and I was going to get marry and move to a different state.
I'm just taking advantage of the IRS tax code for investment properties since the Maryland home is now considered an investment property. My cost-basis is considered when I started renting the place out.
I agree with you that the Feds/Congress should highly considere temporary giving people who are trying to sell their primary homes (at a loss) and claim a tax deduction.
Say you lost 30K, you can claim that as a tax deduction (your tax savings would be around 7-10K depending on your tax bracket). Psychologically this type of tax provision (the tax deduction for primary home loss), would would significantly help the housing market much more than this 8K tax credit for first time homebuyers.
This would cost the Government around 5-10 billion in lost tax revenue (my best estimate) if they allowed primary homeowners to deduct losses from their homes.
This may sound like a lot but remember Congress included about 3-4% of "real pork" in that 800 billion stimulus package that was passed in March 2009. Harry Reid (Senate Majority Leader from Nevada) got his "pet" 8 Billion Rail project passed to fund a railroad from Las Vegas to LA.
Wise move on your behalf. Distressed properties were your competition and you priced accordingly. The others that had lesser home at a higher price will continue to ride the tide down. Most will make price concessions but the concession is only keeping up with the slide. It does little to make their home stand out.
What you did by pricing well below homes with fewer features etc..made your home stand out. More people that need to sell should employ your strategy. The others who can't afford to take the loss will just add to the distressed property totals.
3. I'm a numbers guy. The Maryland property I'm selling is costing me almost $4000 a month (principal/interest/re taxes/insurance/hoa/utilities). If I let it sit idle for 6 months trying to haggle 10-20K more, I would essentially be throwing away 24K in mortgage payments in 6 months.
My realtor and I are on the same page. She thinks more people should think like me. It's a bad real estate market but I think people get their emotions get the better of them. Sometimes you have to take your losses and move on.
You have your head on straight.
Most sellers however, cannot afford to bring money to the closing table.
Most sellers do not need to sell and are delusional about the value of their properties. If such properties were withdrawn from the market, it would have a favorable impact on most local markets.
In the areas that I am looking, about 10% of properties are standing empty (as reported by redfin). I don't know what that percentage was between 2000-2006 - but it looks like a huuuge fraction of housing. Eventually, these people will have to sell, or become long-term, often long-distance, landlords, and usually unable to cover their carrying cost (quite a few properties have been taken off the market to be rented out). A lot of these owners would be better off to lower their prices and get out now. But unlike the OP, these owners likely believe things will turn around in a year or two. Looking at the immense shadow inventory, I don't think that's the case....
Good move on your part, OP!
I wish you weren't losing money but I applaud your realistic attitude and doing what you have to do. When life gives you lemons...find some vodka.
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