Sale Or Hold.

Need advice on my three properties

I own 3 properties and bought in 05 when market was high. I sold a property to buy these and at the time was thought it was a good idea... (Was approached and sold by a friend of the family. I know I know) I’ve lost plenty on the value and I’m ok with that, but it hard to swallow. Values have dropped 40% since then if not more. My dilemma is this.



House one. Paid cash, 270,000 zero balance. Good poss cash flow. Rents for 950. Market value 175,000



House two 60,000 @ 5% interest only 5 yrs due in June 2010 rents for 950 market value 150;000. Paid 240,000



House three 164,000 @5% interest only 5yrs due June 2010 rents 950 market value 160,000. Paid 264,000.





Should I just sell house three and take the lost and pay the difference or is there something else I can do with the others to help with this lost? Rates are going up and the thought of 2010 kills me, however rents are going up and I’ve finely gotten the taxes down...

Any help or ideas would by greatly appreciated.

Comments(5)

  • ypochris31st May, 2008

    Frankly this is about the worst possible time to sell. If you can manage holding, odds are that you will do better waiting than selling now. Luckily your interest rates are good and the total of your interest payments should be less than the rent on a single property. My advice would be to wait a year and look at your situation again then, while you still have plenty of time to sell before the balloon.

    Chris

  • bldgingblocks1st June, 2008

    I don’t think there is much recovery as far as mv is concerned. I don’t see mv coming back to the 05 market for a long long time. How ever with the rents edging up, the # three house is poss 115 a month. Not much I know. The other two are good poss. I don’t really have the cash to pay the difference if I sale #3. 4,000 on the loan plus 5or6% commission. Guess that’s really why I’m asking for advice. If I had the cash I would just bit the bullet and get rid of it.
    I asked a lender to loan on the paid in full house, and he said I had to live in it. Don’t know why. I have at least 160,000 equity in it.
    A local realtor told me to try a L/O with house# three. Said I could ask alittle higher asking price.
    I’ve read alittle about this in the form, but still not sure I like it. Seems most T/B can’t qualify. Is this true?
    As far as tolerance, I hope I can last till I come up with a plan.
    Thank you for your time in this

  • NewKidInTown32nd June, 2008

    Have you given us all the details on your financing? You say two properties are financed with interest only loans. You also say that the interest only period expires in 2010.

    I am guessing that you have a loan for which you pay interest only for the first five years at a fixed rate. What happens when the interest only period expires? Does the loan convert to a fully amortizing loan over the next 25 years? If so, at what rate of interest? What happens to your cash flow when the loans convert?

    Without knowing where these houses are located and with no knowledge of your local market, I would venture to say that your rents are too low. For the price you paid for these properties, I would have expected rents at least 50% higher.

    Could you also tell us more about your rents? What is the average market rent for similar properties? Do you self-manage or use a property management company?
    [ Edited by NewKidInTown3 on Date 06/02/2008 ]

  • bldgingblocks2nd June, 2008

    I have an adjustable rate loan that can start at 7.5 % in June of 2010 and caps at 10.50 till 2035. The homes are in Tulare calif and since the housing bust rents dropped 15 % to 20%. Now that the foreclosures have taken over and owners need a place to live, the rents are edging back up. I’ve lost 650 a month since 2005.
    The return at the time of purchase was already low compared to the numbers I’ve seen on the forums. All three are in nice areas, 3-2 2 car garage. Unemployment just hit 6%. Little over national. ( for now ).
    I do have a property management company. 6.5% of rents. This is good for us. Most are 8 to 10%.
    Taxes are 1% and it’s taken a year to get them to review for this market. They say there alittle busy. I’m sure they where.
    Hope this gives you alittle more to look at. I don’t pay utilities but do have a HOA of 79.00 a year on one of the homes.
    Again thanks to all who have taken the time to read and reply, and all comments all welcome.

  • NewKidInTown33rd June, 2008

    Assuming the loans convert to fully amortizing in 2010, are you able to handle the negative cash flow? You can always refinance the mortgages now while rates are still in the low 6% range. Get 30 year fixed rate mortgages.

    Your rents are low. Raise rents on your next lease renewal, even it you just increase the monthly by $25 per month when your tenant renews. If you have a vacancy, advertise you rental at $100 below the prevailing market rent for comparable properties in the area. Consider Section 8.

    If you can ride this out for the next three or four years, market values should improve enough to maybe let you break even should you still want to sell in a few years.

Add Comment

Login To Comment