Real Estate

I just finished reading a Mint.com blog post about whether or not you should walk away from your home. It was especially interesting to me because I made the decision almost a year and a half ago to walk away from all three of my rental properties when I saw what was happening to the market. If you’re not familiar with my situation, you can read my comment on the post, or below, for a quick overview.

I purchased my first rental property at the age of 21. Everyone said I would make a killing and was really smart for investing so young. I wish I had done more research and seen that we were approaching an inevitable bubble. I bought my first property (a 2-family) for $190k in 2003. Within a year it was valued at double that.

After refinancing and putting money into the first property, I bought two more properties the following two years. I had 12 tenants total (being a landlord is no easy task!). The mortgage lenders were pushing ARM’s like crazy… and they made sense to an investor like me. I needed the lowest monthly payment so I could take the little income left from the rent to put back into the properties. Plus, I could always just refinance my 2-year fixed / 28 year adjustable mortgage before the 2 years-fixed were up (refinance to a conventional 30-year fixed)… right?

Well, taxes went way up. I had a few tenants that cost me over $15k in lost rent (damn tenant-rights laws!), unexpected property damage from frozen water pipes, a couple more bad tenants, and while all this was happening the value of my house secretly dropped below the amount I owed… oh sh*t.

Then I get a letter in the mail saying my monthly mortgage payments are going to increase by more than $600 a month… but wait, I’m already dishing out over $200 a month from my pocket to pay for the properties (assuming all the units are fully rented)! I can’t refinance because the value of the property is less than what I owe. I can bust my ass for the next 5-10 years trying to keep up with the payments or I can let everything fall down, file for bankruptcy, and move on.

I’m filing. And I’m damn glad. $450k multi-family properties are now for sale at $140k… less than I bought my first property in 2003. For me it’s easy because they were investment properties, not houses my family lived in (I’m single). I’m renting now and saving as much money as I can, because when things start to turn around I want to be ready, not buried under a million dollars in debt.

The buyer who was interested in purchasing my $350,000 property for $180,000 has decided to back out (even after the bank accepted the offer, despite it being $170,000 less than what is owed). I rushed like crazy last weekend to clear all my stuff out thinking the property would be in someone else’s name by the end of last week.

There are numerous reasons why he backed out, but mainly because of complications with the illegal studio apartment in the attic. It was clearly stated in the MLS listing that it was a 2-family property with an illegal in-law unit.

Needless to say, the bank’s $180,000 offer acceptance is only good through April 10th and I received a letter in the mail stating the foreclosure date has been set for April 28th. My agent has relisted the property in MLS and is desperately looking for a new buyer.

The past three days (including today) have been spent clearing out the 12×16′ shed and the basement of my first property in preparation for the sale that is supposed to take place at some point this week.

I am exhausted.

But one thing is for sure: I have too much stuff. Mostly tools, hardware, and other house-related things — I can partly justify having so much stuff because for many years my sole intention was to own properties for long term investment and do most, if not all, of the repair and maintenance myself. Now plans have changed.

One of my new years resolutions for this year is to reduce what I own and that’s exactly what I intend to do. I estimate everything I own would take at least a dozen, maybe even one and half dozen, truck loads to move using my pickup. I’d like to reduce that to at least half a dozen or even three truck loads by the end of this year.

A few weeks ago someone made an offer on my Cumberland Rd property and my agent submitted the offer to my bank to get approval of a short-sale (I owe $350k on the property and I’m trying to sell it for $180k).

Late this week, my agent called to inform me that the bank has accepted the offer (they’re probably happy to get anything kind of offer in this market) and the closing date has been set for March 28th. That’s only a few weeks away and I still have lots of stuff in the big shed I built and in the basement I renovated. This weekend and next weekend are all I have to move everything out.

It still doesn’t feel real, but I suppose owning the house and all the work I put into it also hasn’t felt real. I’m already beginning to feel the mental relief with one of the houses no longer in my name and I suppose it can only get better from here.