Help Me Get Out of Mortgage

[z1ggy]

Edit: Topic within thread has changes since its inception. I am now discussion my current renovations underway to help increase value of home without spending much money. Seems as if renting it out is just too much risk for me at this time.


My house has been on the market for almost a year, I've received no offers at all, and even if I ever did, the deal would likely cost me at least $10,000 to close. I'm considering renting it out some spring, just so I can move out and get on with my life. I've toyed with the idea of listing it for sale by owner (which would save me around $4,000) but that makes me pretty nervous, too.

What paper work and other things did you need to obtain tenants? What places did you use for background checks, etc? I know there's horror stories all over the place, but I am kind of running out of options.

 

[herm0016]

I am using lease runner, i am a new landlord also. leaserunner.com charges 15 for e-signing of lease documents, 20 for credit report and 3 per transaction paying rent and such things. Its very convenient and there is no monthly fee, everything is a la carte and they are based just a few miles from here. It took us about 3 months to find a renter. I had to have an inspection by a city licensed guy and apply for a rental license in the city, ymmv depending on your city/county regs. Just be picky about your renters and you should not have too much trouble. Make sure everything is in the lease about utilities and pets and who takes care of what.

 

[gururu2]

1) Make a lease. I used an old apartment lease I had and tailored it to a single family home and my city/county/state.
2) Get a rental license from your county or state or both.
3) Transunion smart move is good (free for you) if you have tenants pay the application fee.
4) Get ready to start the depreciation clock. All of your costs to advertise and rent are deductible so start keeping track. Depreciation starts about when you start renting (and can include the time you put it on the market) so get a good grip on the cost basis of the property when you rent.
5) There are tax breaks on losses if you actively do the management yourself. If you hire a company/agent you may be subject to rent withholding (state takes a percent out of rent before you see it).

 

[mizzou]

If you are nervous or worried about losing up to $10,000.00, jumping into a rental agreement may not be a good option right now. If you can find a personal friend/relative who you know for sure would be an awesome tenant, you should get your feet wet that way first.

Consult with a property law attorney for legal advice, that's my opinion.

 

[NetWareHead]

I made up my lease by googling sample tenant leases and copying/pasting the parts I liked. My bro-in-law is an attourney and vetted it to make sure it was enforceable. Your contract needs to be rock solid; if you ever go to court that will be what a judge looks at.


Also get a reasonable and accurate market analysis for the property you are renting out. It may benefit you to seek out a realtor who can provide such nformation. Typically you may have to fork over 1 months rent as a fee for such services when the place is rented.


Keep a legal excuse up your sleeve to deny a potential applicant should they smell fishy to you.

 

[edro]

Put a For Rent sign in the front yard and post of Craigslist.
Hold an open house and book appointments 30min apart on a single day.
As everyone shows up to view the house, previous appointments drive demand.

Find a lease agreement online and tailor it to your needs.

Establish an LLC ($50? state fee) and transfer the house loan to the LLC (free).
If someone gets hurt and sues you, they can only sue the LLC, so your personal property/money is safe.

No need to pay someone else (or company) to do all of this for you.

 

[Subyman]

Clean up the house or do simple renos so it sells.

 

[slashbinslashbash]

No offers in a year = your asking price is too high.

Simple as that.

 

[z1ggy]

Thanks all for the replies. Christ, this sounds kind of complicated. I do not have any family or friends in the area who would be interested in renting, so that avenue is gone.

Sounds like I need to check into state laws on this.

No offers in a year = your asking price is too high.

Simple as that.

Well, seeing as I'm already going to lose $10,000 assuming I closed @ 95% of my asking price, do you really think I can afford to lower the price even more? If you answer "no", then you'd be correct.

Clean up the house or do simple renos so it sells.

I've already done that. The market in this area is completely stagnant, and nobody wants to buy a 2 bed 1 bath house. Every year I pay off approximately $3,000 dollars on the principal, so 6 months from now I could potentially reduce the price by a few thousand, but nothing that's going to make people jump at it.

 

[NetWareHead]

I'd take the house off the market; you have what amounts to a stagnant listing which is a red flag to most potential buyers.

You need to figure a way to either increase the home's value so it sells for a higher price or figure out how to rent it out.

Find out what comparable homes in the area sell for proceed from there. If you are workig with a relator, then most of them could also offer to rent it for you as well as screen tenants.

 

[slashbinslashbash]

Well, seeing as I'm already going to lose $10,000 assuming I closed @ 95% of my asking price, do you really think I can afford to lower the price even more? If you answer "no", then you'd be correct

Renting out a house that you're underwater on and becoming a landlord as a last resort is not a way to "get on with your life". Short selling it, taking the hit to your credit (and getting the short sale approved by the bank so you walk away without owing any money) is the way to get out of it.

Not necessarily saying it's what I'd do, but if you really want to move on then that's your best option.

I have come across some good advice on getting it rented, and edro already touched on some of it. Put an ad up and state that it will be available for rent on a given day at a given time. Take calls and get people in a queue 15 minutes apart. E.g. say it's going to be available to rent at 1:00 PM. Schedule the first people at 1:00, the next people at 1:15, the next people at 1:30, etc. By that day you should have 20 people scheduled to show up. That way you give people a sense of urgency and you should end up with at least 3 definite "takers" (assuming you price the rent correctly... undershoot if necessary: enough to cover your mortgage + some cushion, but don't get greedy if you don't have a realtor or some other professional advising you on how to set the rent.... your goal is to get it rented to good solid renters and cover your expenses, not to maximize profit). Conditions are 2 months' rent up front as deposit, you need a check same day. Must pass a credit/background check and provide current/last landlord reference. Charge a $50 application fee and pay the $50 for a good background check, and call the current/last landlord right there while they're standing in front of you. Make all of this clear on the phone when you schedule them so that they won't come if they're scared of any of it. If they give you the slightest funny feeling in the pit of your stomach, simply move on to the next folks. You should be able to end up with a good, solid, dependable renter with one day's worth of work.

The key to this is to play the numbers game and to simply reject anyone who is going to be a waste of your time and/or money in the future. Anyone who balks at 2 months deposit is not worth your time. Anyone who balks at the background check or $50 app fee is not worth your time. There are plenty of good renters out there with good jobs and good references. Those are the people you want, not the people who will be calling you every month at the first of the month and saying they will be late by a few days. You are trying to reduce the headache in your life, not increase it! Don't let somebody pull at your heartstrings with a sob story. Trust me, you will be hearing sob stories every month until you have to evict them.

There should be a fairly standard lease form for your state that you can find online, through an attorney or realtor (and I think they have them for purchase at Office Depot too). In Texas the Texas Real Estate Commission publishes a standardized residential lease form.

 

[drnickriviera]

^^ I'd say there is some good advise there, but i only wish it was that easy to get a good renter in one day. I wouldn't get his hopes up as all markets are different. My family has been doing this for 30 years, at times we have to leave a house up for 3 months before we find someone we want.

Some things i'd like to point out from slashs' post. Some states limit the amount you can collect for a deposit. I've also heard of some limiting the amount for the app fee too. Like others said, you'll have to check you local laws. You may be able to ask for first/last months rent and deposit. Whatever you do, get that in a cashier's check not just a check. I wouldn't do reference checks on the spot. I've had people give fake references before. Fake supervisor number, fake landlord number. If possible call the companies main line and ask for that person or HR. If the landlord listed doesn't match who owns the property (if that info is available to you easily) then dig deeper. Also check their ID when you take their application.

Don't mean to sound all doom and gloom, but all these years of being a landlord has made me a more cynical person.

 

[z1ggy]

^^ I'd say there is some good advise there, but i only wish it was that easy to get a good renter in one day. I wouldn't get his hopes up as all markets are different. My family has been doing this for 30 years, at times we have to leave a house up for 3 months before we find someone we want.

Some things i'd like to point out from slashs' post. Some states limit the amount you can collect for a deposit. I've also heard of some limiting the amount for the app fee too. Like others said, you'll have to check you local laws. You may be able to ask for first/last months rent and deposit. Whatever you do, get that in a cashier's check not just a check. I wouldn't do reference checks on the spot. I've had people give fake references before. Fake supervisor number, fake landlord number. If possible call the companies main line and ask for that person or HR. If the landlord listed doesn't match who owns the property (if that info is available to you easily) then dig deeper. Also check their ID when you take their application.

Don't mean to sound all doom and gloom, but all these years of being a landlord has made me a more cynical person.

Yeah slash's post is very enlightening. Does anybody have any clue how much of a credit hit I may take for a short sale? I don't really see a way of making improvements to the home that will return more money than I spend, which is the only way I could really help myself.

Edit: Also based on the most basic principal of a short sale (not having the financial means to cover the principal cost of the lien) I probably wouldn't even qualify.

 

[NetWareHead]

Yeah slash's post is very enlightening. Does anybody have any clue how much of a credit hit I may take for a short sale? I don't really see a way of making improvements to the home that will return more money than I spend, which is the only way I could really help myself.

Its a long recovery period which may hit you as bad as a bankruptcy. The creditor may report it for as long as 7 years as an account not paid as agreed. The next may sound obvious, but even the amount of delinquint payments preceeding a short sale will show up on the credit report and affect fico score. The reason I mention this is most lenders will not consider a short sale until the borrower exhibits "financial distress" through delinquint payments. So you have deliberately miss payments before you get into short sale eligible territory.

IMO, dont do it until you have exhausted all options. You will regret it for the next 7 years every time you need a credit card, a car loan, etc... You have an asset that could be rehabilitated. Even if you break even or only lose minimal money per year, its better than carrying around the credit stigma of a short sale. In one of my properties, I lost money on it (average of $2000 a year) while I saved up money. I renovated the kitchen, did a few other upgrades and was able to charge significantly higher rent leading to going from a loss to now making a nice profit each month.

 

[CADsortaGUY]

What kind of rents can you get for that type of house in your area? You obviously overpaid but if the numbers work, rentals can be a great source of cash flow. More than one is ideal(5-6 is a good start) but you have to start somewhere.

 

[z1ggy]

Its a long recovery period which may hit you as bad as a bankruptcy. The creditor may report it for as long as 7 years as an account not paid as agreed. The next may sound obvious, but even the amount of delinquint payments preceeding a short sale will show up on the credit report and affect fico score. The reason I mention this is most lenders will not consider a short sale until the borrower exhibits "financial distress" through delinquint payments. So you have deliberately miss payments before you get into short sale eligible territory.

IMO, dont do it until you have exhausted all options. You will regret it for the next 7 years every time you need a credit card, a car loan, etc... You have an asset that could be rehabilitated. Even if you break even or only lose minimal money per year, its better than carrying around the credit stigma of a short sale. In one of my properties, I lost money on it (average of $2000 a year) while I saved up money. I renovated the kitchen, did a few other upgrades and was able to charge significantly higher rent leading to going from a loss to now making a nice profit each month.

Problem is I'm only 28. I still have significant debt in the form of student loans, and I still have a car payment. I live in the northeast where everything is expensive and saving is hard. There's no way I can afford to lose $2k a year while simultaneously saving up enough money to remodel. Plus, is it even worth it? It's a small 2 bed 1 bath in a semi-rural town, in a mediocre neighborhood.

What kind of rents can you get for that type of house in your area? You obviously overpaid but if the numbers work, rentals can be a great source of cash flow. More than one is ideal(5-6 is a good start) but you have to start somewhere.

Typical rent for a 2bed 1bath house of this size, in this area ranges from about $1000-1400. Current mortgage is $1240, but with tenants in there I suspect mortgage would rise to ~$1300 due to higher insurance premi. Breaking even would be fine, but you have to assume 1-2 months per year on average in the long term, the house will be vacant. Add in dumb tenant fee like "Oh the washer isn't working, send a repair guy" for $150 a few times per year.

I'm really at a loss here. I need to get out of my house ASAP, but renting really seems like such a potential nightmare. With no real hopes of selling anytime soon it seems, I really have no clue what to do other than hope it randomly burns down or something...

 

[3chordcharlie]

You have to take a really hard look at the numbers as far as renting:

If you can't afford to live in the house, and the rental market is cold, then you probably can't afford to rent it out either.

Cash-flow negative rentals can still be a reasonable investment in some markets, but contrary to popular belief, houses are a depreciating asset if maintenance costs are not planned for and covered by rent. If you are throwing money in to keep it afloat, and you are concerned about $2000/year in negative cash flow, you are a hair's breadth from disaster.

Forget the washer not working: what are you gonna do when the roof/chimney/furnace needs to be replaced?

A short sale will affect your credit badly, but unless you can radically alter the rest of your budget (cut costs, get a second job) it unfortunately sounds like you are already close to insolvency. The good news is you actually sound pretty responsible, you are young, and you have time to fix this.

 

[NetWareHead]

Problem is I'm only 28. I still have significant debt in the form of student loans, and I still have a car payment. I live in the northeast where everything is expensive and saving is hard. There's no way I can afford to lose $2k a year while simultaneously saving up enough money to remodel. Plus, is it even worth it? It's a small 2 bed 1 bath in a semi-rural town, in a mediocre neighborhood.



Typical rent for a 2bed 1bath house of this size, in this area ranges from about $1000-1400. Current mortgage is $1240, but with tenants in there I suspect mortgage would rise to ~$1300 due to higher insurance premi. Breaking even would be fine, but you have to assume 1-2 months per year on average in the long term, the house will be vacant. Add in dumb tenant fee like "Oh the washer isn't working, send a repair guy" for $150 a few times per year.

I'm really at a loss here. I need to get out of my house ASAP, but renting really seems like such a potential nightmare. With no real hopes of selling anytime soon it seems, I really have no clue what to do other than hope it randomly burns down or something...

Can you refinance? What is your interest rate? You could try to line up some lendors to refi your house. Your overall payment should go down but you will have to pay closing costs on the new loan.

One attempt may be to double down and do some renovations and try to hit that $1400 rent figure. Have you spoken to some landlords in your area to see what the rental/tenant market is like?

Speak to a tax pro or accountant. You will be able to get creative with your deductions and writeoffs depending on whether you declare this property to be your primary residence or if it is a rental income generating property. Losses can sometimes "create" profitability or let you break even.

If you dont want to landlord and all else fails, take the short sale option... Good luck.

 

[z1ggy]

Can you refinance? What is your interest rate? You could try to line up some lendors to refi your house. Your overall payment should go down but you will have to pay closing costs on the new loan.

One attempt may be to double down and do some renovations and try to hit that $1400 rent figure. Have you spoken to some landlords in your area to see what the rental/tenant market is like?

Speak to a tax pro or accountant. You will be able to get creative with your deductions and writeoffs depending on whether you declare this property to be your primary residence or if it is a rental income generating property. Losses can sometimes "create" profitability or let you break even.

If you dont want to landlord and all else fails, take the short sale option... Good luck.

Yeah a tax pro/lawyer will be important here. Since money is a concern, I feel like trying to spend money to save money doesn't make much sense, because I am limited by my bank account.

Refi has also crossed my mind. How much would closing costs be typically?

 

[z1ggy]

You have to take a really hard look at the numbers as far as renting:

If you can't afford to live in the house, and the rental market is cold, then you probably can't afford to rent it out either.

Cash-flow negative rentals can still be a reasonable investment in some markets, but contrary to popular belief, houses are a depreciating asset if maintenance costs are not planned for and covered by rent. If you are throwing money in to keep it afloat, and you are concerned about $2000/year in negative cash flow, you are a hair's breadth from disaster.

Forget the washer not working: what are you gonna do when the roof/chimney/furnace needs to be replaced?

A short sale will affect your credit badly, but unless you can radically alter the rest of your budget (cut costs, get a second job) it unfortunately sounds like you are already close to insolvency. The good news is you actually sound pretty responsible, you are young, and you have time to fix this.

Well, let's be clear: I can afford to live in it. I can just barely afford to sell it, given that data that I have been presented. Closing price of comparable homes in the past 6 months were roughly 95% of asking price. Given my listing price of $159 and taking all applicable taxes and fees, that would mean I would need to pay ~$10,000 to completely close the deal. Unless there's some loop hope where I can get a loan of some type where I pay back that money over time, I will need to dish out literally my entire savings account.

I'm trying to think of all options here but I do view renting as a short term potentially limitless risk, where as selling I at least have a ceiling to my loss and it's known ahead of time. Obviously though if it never sells, alternate options have to be explored. It's just risk vs reward at this point.

 

[NetWareHead]

Yeah a tax pro/lawyer will be important here. Since money is a concern, I feel like trying to spend money to save money doesn't make much sense, because I am limited by my bank account.

Refi has also crossed my mind. How much would closing costs be typically?

I refi'd a property in 2013 and I believe it was almost 4k. I went from a 30 year to a 15 year. My monthly payments did get more expensive but now, a far greater percentage is applied to the principal instead of the interest. I'm knocking down my principal to the tune of over $1k a month and it keeps on increasing with each payment.

 

[z1ggy]

I refi'd a property in 2013 and I believe it was almost 4k. I went from a 30 year to a 15 year. My monthly payments did get more expensive but now, a far greater percentage is applied to the principal instead of the interest. I'm knocking down my principal to the tune of over $1k a month and it keeps on increasing with each payment.

How much % wise did your monthly payment go up? Ie went from $1000 to $1500, so 50% increase.

Oh and closing costs of $4k, on how much of a loan?

 

[NetWareHead]

How much % wise did your monthly payment go up? Ie went from $1000 to $1500, so 50% increase.

Rougly a 20% increase in monthly payment. Went from 5.5 to 3.25% interest rate. I think it was worth it. I have 12 years remaining on this property

$198,000 loan

 

[3chordcharlie]

Well, let's be clear: I can afford to live in it. I can just barely afford to sell it, given that data that I have been presented. Closing price of comparable homes in the past 6 months were roughly 95% of asking price. Given my listing price of $159 and taking all applicable taxes and fees, that would mean I would need to pay ~$10,000 to completely close the deal. Unless there's some loop hope where I can get a loan of some type where I pay back that money over time, I will need to dish out literally my entire savings account.

I'm trying to think of all options here but I do view renting as a short term potentially limitless risk, where as selling I at least have a ceiling to my loss and it's known ahead of time. Obviously though if it never sells, alternate options have to be explored. It's just risk vs reward at this point.

I would imagine $10k on a line of credit is something you could take on and eliminate in a year or two. Medium-sized pain to end your suffering. You are right about the limitless risk of renting out.

If it's an option, I would take it off the market and just live in it (rent it from yourself) for a year, then re-visit. I agree with Netwarehead regardless: you should probably take it off the market, at least temporarily.

 

[z1ggy]

Rougly a 20% increase in monthly payment. Went from 5.5 to 3.25% interest rate. I think it was worth it. I have 12 years remaining on this property

$198,000 loan

Right now I believe my rate is 4.75%. I can go into Excel and look at some options with what a payment would turn into. If my payment goes up 20% (roughly $250 a month) but I can manage to keep a roommate, that's pretty tolerable if I could end up paying roughly $1,000 a month to principal. Thanks for that tip.

I would imagine $10k on a line of credit is something you could take on and eliminate in a year or two. Medium-sized pain to end your suffering. You are right about the limitless risk of renting out.

If it's an option, I would take it off the market and just live in it (rent it from yourself) for a year, then re-visit. I agree with Netwarehead regardless: you should probably take it off the market, at least temporarily.

Yeah, it's just very frustrating. I'm attempting to find a new job and leave the area to move on with life. Taking it off the market and living here for another year sounds very defeating, but if I'm not willing to rent after I talk with a lawyer/tax person, kind of sounds like no other choice.