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I bought my house during the housing bubble. I can afford the mortgage but have wanted to move for years for many reasons including to live closer to my office (which is over an hour away). I havenít moved because Iím underwater and have been waiting for home values to rise in my area. I applied for short sale and the bank denied the application.†

These are the numbers to sell my house, per my realtor (with whom I met yesterday)

  • Comps from recent sales: $120,000
  • I owe $142,000 [first mortgage $116,000 (5.5 percent rate, 30 years) + second mortgage $26,000 (8.75 percent rate, balloon payment of about $21000 due in 2021) (I refinanced my first thanks to HARP, which is allowed only one time. I am unable to refinance my second because of my high loan-to-value.)
  • Deficit plus fees to sell: $35,000 (due at closing)†

My income has doubled since I bought the house so I have been able to fatten my savings:

  • 401k: fully funded each year for the past 7 years
  • Liquid savings: enough to cover 2 years of gross income. (I know I need to invest more of this.)
  • I have non-retirement investment accounts

I would like your thoughts on a strategy to pursue:

  • Sell now: Take the $35,000 loss.
  • Hold: Payoff the second mortgage (due to the high interest rate) with cash from savings, refinance the first mortgage, move out, then rent out my house. Based on rental rates in my neighborhood, rental income would cover the current first mortgage amount (including taxes and insurance) plus an additional $300 to $400 per month. In a few years, if home values rise, I may be able to sell and break even or make a small profit.
  • Hold and do nothing different.†
  • Other option I haven't considered.

Thanks for helping me think this through.

UPDATE: Dec. 12, 2016: Thanks, everyone. I am going to hold onto the house. I am paying off the second mortgage today. Also, I'm starting the refi process for my first mortgage. After the refi is done, I'll reassess the situation.

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naturally, i would get a second opinion from another agent before agreeing to all this. i have never seen transfer taxes... (more)

solarUS (Jan. 10, 2017 @ 7:04a) |

You're right. Prop taxes are not a closing cost, but I will have to pay them at closing. When I look at sales listings i... (more)

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When you move, do you plan on renting or buying?

If I were in your shoes I'd probably keep that house and rent it out.

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Do you want to be a landlord and have you been planning to buy rentals? If the answer isn't yes then I wouldn't rent it out.

Generally I'd vote for just selling it and eating the loss. Sounds like you can afford the cost and a 1 hour commute is awful. But thats my opinion. I'd look at it like comparing the cost of financing that $35k long term versus saving 2 hours a day. Thinking of it like that its worth it to me.

Another option you didn't list is holding the place and paying off the 2nd loand and refi. the first loan.

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jerosen said:   Do you want to be a landlord and have you been planning to buy rentals? If the answer isn't yes then I wouldn't rent it out.

Generally I'd vote for just selling it and eating the loss. Sounds like you can afford the cost and a 1 hour commute is awful. But thats my opinion. I'd look at it like comparing the cost of financing that $35k long term versus saving 2 hours a day. Thinking of it like that its worth it to me.

Another option you didn't list is holding the place and paying off the 2nd loand and refi. the first loan.

††
Thanks for asking. I'm on the fence about being a landlord. I likely would hire a property management company. I did list the "hold and refi" option. It's the second bullet.

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Pay off that second mortgage now. †Unless there's a chance you will file bankruptcy in the near future, there is no scenario where keeping that 8.75% debt is part of the plan. †Then re-evaluate.

As far as renting out the house, remember that your expenses remain even when you do not have a tenant. †But, if the rent is covering the mortgage payment and other expenses, you do not need property values to rise for you to break even.

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ProfessorB said:   jerosen: Thanks for asking. I'm on the fence about being a landlord. I likely would hire a property management company. I did list the "hold and refi" option. It's the second bullet.
††
OK I thought the 2nd item was just hold, refi and rent.††† Its then two versions:† hold and refi and live there versus hold, refi and rent?

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Buy another place, rent old place out, stop paying mortgages.

Profit.

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If you're to rent it what are the details on the rent, expenses? You say the rent will cover the 1st mortgage with 300-400 extra. Does that cover property tax, insurance? What other expenses do you have? An HOA? How easily would it rent? If you're hiring a property manager then they typically take 10% of gross rents, did you factor that?

How would this house compare to other potential rental investments?

I have an underwater house that we kept as a rental because it was underwater and its been a mistake. I wouldn't recommend it.

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Another thing to consider for first-time landlords is, your tax return can become pretty complicated. I had a hard time making sure I got my depreciation numbers correct even with the tax software because of the stupid state that I live in.

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Glitch99: Thanks. Your advice is helpful.

Jerosen: 1. You're right. There are a few hold options. 2. I noted in my first post that rent will cover the first mortgage including interest and taxes. I don't have an HOA fee. I didn't factor in the 10 percent management fee but when I add that in, rent still will cover the first mortgage plus fee with about $200 extra. 3. When it comes to condition, my house is comparable, based on recent listings I've seen online. My realtor gave two suggestions on things to fix before it's ready to rent. The rental range I stated includes a rented house 2 doors down from mine. That house has no central AC. My house has central AC so I may be able to ask for higher rent than that landlord.

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ProfessorB said:   Glitch99: Thanks. Your advice is helpful.

Jerosen: 1. You're right. There are a few hold options. 2. I noted in my first post that rent will cover the first mortgage including interest and taxes. I don't have an HOA fee. I didn't factor in the 10 percent management fee but when I add that in, rent still will cover the first mortgage plus fee with about $200 extra. 3. When it comes to condition, my house is comparable, based on recent listings I've seen online. My realtor gave two suggestions on things to fix before it's ready to rent. The rental range I stated includes a rented house 2 doors down from mine. That house has no central AC. My house has central AC so I may be able to ask for higher rent than that landlord.

Since you did not say much†about paying off that second mortgage, I would repeat: pay off your second mortgage now. Paying it off have pretty much no negative effect on your current situation and only positive effect. You sound like you have a good job so you are unlikely to declare bankruptcy and get a relief from that debt before paying it off. Apart from this last possibility, your other options stay the same. Actually the scenarios becomes more clear, and you can continue to ponder your options while taking the steps to pay it off.

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Costcoer said:   
ProfessorB said:   Glitch99: Thanks. Your advice is helpful.

Jerosen: 1. You're right. There are a few hold options. 2. I noted in my first post that rent will cover the first mortgage including interest and taxes. I don't have an HOA fee. I didn't factor in the 10 percent management fee but when I add that in, rent still will cover the first mortgage plus fee with about $200 extra. 3. When it comes to condition, my house is comparable, based on recent listings I've seen online. My realtor gave two suggestions on things to fix before it's ready to rent. The rental range I stated includes a rented house 2 doors down from mine. That house has no central AC. My house has central AC so I may be able to ask for higher rent than that landlord.

Since you did not say much†about paying off that second mortgage, I would repeat: pay off your second mortgage now. Paying it off have pretty much no negative effect on your current situation and only positive effect. You sound like you have a good job so you are unlikely to declare bankruptcy and get a relief from that debt before paying it off. Apart from this last possibility, your other options stay the same. Actually the scenarios becomes more clear, and you can continue to ponder your options while taking the steps to pay it off.

††
Costcoer: Thanks. That's now my plan. Payoff the second then reassess the situation. I got a payoff quote that's good for 10 days. I hope to post my progress on this forum as my situation changes.

Yes, my job is good. It's pretty secure, too. I'm grateful for that.

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IF you're going the management company to handle the rental. Make SURE you get a good management co.
Management companies can be great or terrible. If they're terrible it's an FN nightmare.

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zapjb said:   IF you're going the management company to handle the rental. Make SURE you get a good management co.
Management companies can be great or terrible. If they're terrible it's an FN nightmare.

††
Precisely. People complain about management companies but as long as you get a good one (and rate around here is 8%), they prove their value in time and cost savings. Never had a vacant property, never wound up with a deadbeat tenant, and their established relationships with vendors means I don't have to find a 24-hour plumber from 3,000 miles away and pay whatever rate they charge since they have several vendors on tap with rates better than I could do given the volume of work the mgmt company sends to them (including a couple Handy men for stuff it'd be hard to find someone reputable to do without major cost). Also good about making tax-time straightforward between their good documentation and TurboTax (one of higher versions needed for landlords).

Ask for a referral list. Ask a realtor you trust (if you know one) who'd they'd recommend. If there's a rental a couple doors down like OP said, ask the renters about how their interactions with the property managers go (and who they are). You're trusting a valuable asset tom someone a distance away, worth doing due diligence.

And OP, agree to pay the second off asap if plan is to not ding credit.

If you're in a no recourse state, worth at least seeing if walking away (buy new house first prior to wrecking credit) makes any sense both financially and with your personal ethics. I'm in the "pay your debts" camp since for me, a promise is a promise. But I understand that some people have different views and it should be at least something you run the numbers on since, conversely, business is business.

Good luck and an update once you decide what to do and have done it are always appreciated on this forum.

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Pay off debt, rent near your office, rent out home. Save up some then decide what to do after.

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Here's something to consider: what percent of your 2x gross income savings is that $35k loss? If it's 5%, then cut your losses and bounce. If it's 50%, then that changes things...

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I've said this before lots of times and I will say it again. What is your credit score worth it to you for the next two years? 10k? 15k? Get yourself a new place and walk away from this one. 35k is a good chunk of change...

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That is something to consider. I'm guessing since Op didn't list that as an option this probably isn't a route Op would choose.

- As long as Op can get approved for another mortgage while holding this one, (and doesn't run his own business) 35K is a large sum of money. (If Op walked away, and needed a car at some point, he could just pay cash for it.)

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Not enough info. Is it a Judicial foreclosure state. How is housing market in the state--rentals vs ownership. How will prospective tenant be vetted. If tenant fails to pay mortgage, is state law landlord or tenant friendly--how long to evict, get new tenant.
Whether lender actually possesses note & mortgage. Bankruptcy option Ch. 13 with federal mediation program depending on district. Pay the consultation fee and talk to a lawyer, preferably on a debtor-creditor committee in the local bar association. Or continue to wing it with people who may or may not have a clue. †Not previously mentioned: †the standard practice of the lenders involved.

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alamo11 said:   I've said this before lots of times and I will say it again. What is your credit score worth it to you for the next two years? 10k? 15k? Get yourself a new place and walk away from this one. 35k is a good chunk of change...
†If the OP is in a recourse state, the lender may pursue him for a deficiency, at which point he would end up owing not just the $35K, but also default interest, fees and charges, plus he'd still take the same substantial credit hit. Per the OP's post, he is anything but judgment proof, so the lender will have a financial incentive to pursue him. By the way, if your credit is worth less to you than $35K, then you're doing a lot of things wrong.

Also, hasn't the†Mortgage Forgiveness Debt Relief Act of 2007 expired? If so, the amount of debt forgiveness, if any, would be taxable to the OP.

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geo123 said:   
alamo11 said:   I've said this before lots of times and I will say it again. What is your credit score worth it to you for the next two years? 10k? 15k? Get yourself a new place and walk away from this one. 35k is a good chunk of change...
†If the OP is in a recourse state, the lender may pursue him for a deficiency, at which point he would end up owing not just the $35K, but also default interest, fees and charges, plus he'd still take the same substantial credit hit. Per the OP's post, he is anything but judgment proof, so the lender will have a financial incentive to pursue him. By the way, if your credit is worth less to you than $35K, then you're doing a lot of things wrong.

Also, hasn't the†Mortgage Forgiveness Debt Relief Act of 2007 expired? If so, the amount of debt forgiveness, if any, would be taxable to the OP.

† Yes, I live in a recourse state. Also, my job requires good credit. So walking away is not an option that I want to pursue.

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ProfessorB said:   
geo123 said:   
alamo11 said:   I've said this before lots of times and I will say it again. What is your credit score worth it to you for the next two years? 10k? 15k? Get yourself a new place and walk away from this one. 35k is a good chunk of change...
†If the OP is in a recourse state, the lender may pursue him for a deficiency, at which point he would end up owing not just the $35K, but also default interest, fees and charges, plus he'd still take the same substantial credit hit. Per the OP's post, he is anything but judgment proof, so the lender will have a financial incentive to pursue him. By the way, if your credit is worth less to you than $35K, then you're doing a lot of things wrong.

Also, hasn't the†Mortgage Forgiveness Debt Relief Act of 2007 expired? If so, the amount of debt forgiveness, if any, would be taxable to the OP.

† Yes, I live in a recourse state. Also, my job requires good credit. So walking away is not an option that I want to pursue.

† Not to mention, other loans and credit products, car insurance, security clearance, trading floor situations, etc. Doesn't seem worth it over $35k, but it's all relative. OP, you still didn't answer if $35k is a large chunk of your 2x gross annual salary savings...

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jaytrader said:   Here's something to consider: what percent of your 2x gross income savings is that $35k loss? If it's 5%, then cut your losses and bounce. If it's 50%, then that changes things...
† It's about 14 percent.†

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#1 move and rent
#2 short sale
#3 foreclose
#4 stay put and keep paying the mortgage
#5 borrow 35000 to pay the difference at lending club or proser and sell†
evaluate all 5 and pick the best one .

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sell it and offer owner financing at 10% down, 11% APR, and sell it for the amount owed. People will pay more than a house is worth if the owner finances. then, its no longer your legal obligation, you are just a debt holder. usually these people are ones who have good jobs, are getting over bumps and bruises, but are emotionally attached to an area for whatever reason, and cannot wait until their credit is back to lendable. good ones will refi out of your loan in less than 5 years, because rates are lower and their credit has increased. just another option to think about. No management of rental properties to deal with.

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haloseven said:   sell it and offer owner financing at 10% down, 11% APR, and sell it for the amount owed. People will pay more than a house is worth if the owner finances. then, its no longer your legal obligation, you are just a debt holder. usually these people are ones who have good jobs, are getting over bumps and bruises, but are emotionally attached to an area for whatever reason, and cannot wait until their credit is back to lendable. good ones will refi out of your loan in less than 5 years, because rates are lower and their credit has increased. just another option to think about.
In order for the OP to do this, he has to pay off both mortgages in full. He then becomes a lender of last resort to people who could not qualify for an institutional mortgage and, if things do not work out, don't have a lot to lose. If the buyers default, foreclosing on people and kicking them out is typically more difficult, expensive and time consuming than kicking out a non-paying tenant.

It'd be far safer to offer a rent to own arrangement, where a portion of the lease payment is applied towards a predetermined purchase price.

Regardless, since walking away isn't a viable option here, the fact that the OP is underwater on the house has nothing to do with the way that the house should be disposed of. Owner financing comes with the exact same downsides (and, in the structure that you've outlined,†practically no upsides) regardless of whether you are underwater on your mortgage or whether you own the house free and clear.

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Friends of mine sold their house on a land contract. Buyers divorced, and friends let the new buyer assume the contract (or maybe the contract was written to be assumable).
2nd buyer had a ton of kids and excess wear and tear in the house. The barn burned down, and when my friends signed off on the insurance check, they built a much smaller barn and pocketed the rest of the insurance proceeds.
3rd buyer quit paying on the contract when he got jailed for beating his wife. My friends got the house back with fist holes in many of the walls.

My friends rebuilt the home and sold it to a young couple who could get bank financing, like they should have done in the beginning, or at least when their carefully hand-picked buyers split up.

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Ok if you pay off that 2nd mortgage, which you ought to, then you're left with the primary mortgage at $116k and the house value at $120k so you'd be close to even.

Sounds like the expected rent is close to around $1000. After paying your primary mortgage and the property manager you'd have $200 left. You should expect some vacancies. Figure 95% occupancy rate to be conservative. You also ought to budget for maintenance and repairs. Over the long run something around $100 a month is reasonable expectation. That puts you virtually cash flow neutral on the property. There isn't much incentive to keep that property as a rental at this point.†† Make sure you're aware of other random costs, e.g. I'm paying ~50/month for trash because the city of Portland mandates it.

You should also consider extra potential costs of a rental.
Do you currently get a homestead exemption rate on your property tax? For many states the tax rate is significantly lower for your primary residence.
You also ought to investigate the cost of insurance as a rental to see how much that might change.
Theres also risks of extended vacancies, deadbeat tenants, random trees falling in the back yard (my weekend as a landlord), mold infestations due to tenants who don't know what bathroom fans are for, meth labs and other various horror stories. Its 90% not like that but there are always risks. You *could* get randomly hit with a $5k or $10k bill for a major problem in the future as a landlord. It could also be as easy as cashing a monthly check and waiting while your property value gradually creeps up with only an occasional once or twice annual minor appliance repair.

Finding a good property manager isn't especially easy in my experience. There are a lot of awful managers and many realtors who moonlight to be managers yet have zero real skill or experience in it.

How much have homes appreciated in your area lately? If you've got a mostly cash neutral property then you end up trading the risk of owning a rental to speculate on real estate. And don't forget you'll owe taxes on any gain when you do sell which includes the depreciation recapture.

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jerosen said:   Ok if you pay off that 2nd mortgage, which you ought to, then you're left with the primary mortgage at $116k and the house value at $120k so you'd be close to even.

Sounds like the expected rent is close to around $1000. After paying your primary mortgage and the property manager you'd have $200 left. You should expect some vacancies. Figure 95% occupancy rate to be conservative. You also ought to budget for maintenance and repairs. Over the long run something around $100 a month is reasonable expectation. That puts you virtually cash flow neutral on the property. There isn't much incentive to keep that property as a rental at this point.†† Make sure you're aware of other random costs, e.g. I'm paying ~50/month for trash because the city of Portland mandates it.

You should also consider extra potential costs of a rental.
Do you currently get a homestead exemption rate on your property tax? For many states the tax rate is significantly lower for your primary residence.
You also ought to investigate the cost of insurance as a rental to see how much that might change.
Theres also risks of extended vacancies, deadbeat tenants, random trees falling in the back yard (my weekend as a landlord), mold infestations due to tenants who don't know what bathroom fans are for, meth labs and other various horror stories. Its 90% not like that but there are always risks. You *could* get randomly hit with a $5k or $10k bill for a major problem in the future as a landlord. It could also be as easy as cashing a monthly check and waiting while your property value gradually creeps up with only an occasional once or twice annual minor appliance repair.

Finding a good property manager isn't especially easy in my experience. There are a lot of awful managers and many realtors who moonlight to be managers yet have zero real skill or experience in it.

How much have homes appreciated in your area lately? If you've got a mostly cash neutral property then you end up trading the risk of owning a rental to speculate on real estate. And don't forget you'll owe taxes on any gain when you do sell which includes the depreciation recapture.

Thanks. The expected rent is $1300 to $1400 a month. My first mortgage PITI is almost $1000. If I can refinance, I can get that lowered. I do get the homestead credit on my property taxes. Loss of that credit is something to consider. Property values in the neighborhood have been rising in the past few years.

How long have you been a landlord?†

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ProfessorB said:   
...
How long have you been a landlord?†

††
Something around 15 years now personally and I've watched my dad do it for ~35 years.†† But I only own a few properties.


Another thing to consider here :†† If you are interested in being a landlord : make sure to look at the market and see if there other better rental investments around.†† How does this property stack up versus others as a rental.† You've got this house worth $120k that could rent for $1300-1400.†††† Is that good or bad for your area?†† Could you find a $100k house to rent for 1500 on the other side of town?†† Or a duplex for 200k that rents for $1000 x 2?†† Not knowing the market its hard to say if your property is a good rental investment or not.†† It would be wonderful here, but property is expensive in Portland and you can't buy anything for 120k.

This property has benefits to keep as a rental since its a known property and you don't face transaction costs to acquire it and save a bit versus dumping now a a bit of a loss.††

I think it all comes down to your personal choice if you want to be a landlord and take a bit of risk with potential future gains or just cut your losses now and write a check.

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Why can't people nowadays just buy a house for the sole purpose of living there, instead of hope that it will rise in value within 10 years and sell them? OP does have a valid reason which is the house is quite far away from work.

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If it were me, I'd pay off the $26K 2nd mortgage from savings, and refi the first. After 6 months or so, rent the house out and move to wherever it is you want to live.

Since the place would be cash flow positive without the 2nd mortgage and your income is fairly decent, no reason to consider anything stupid that would trash your credit. It also doesn't make sense to just sell it now and take the $35K cash hit with nothing to show for it when you can invest the $26K to keep an asset that has positive cash flow.

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RealEstateMatt said:   If it were me, I'd pay off the $26K 2nd mortgage from savings, and refi the first. After 6 months or so, rent the house out and move to wherever it is you want to live.

Since the place would be cash flow positive without the 2nd mortgage and your income is fairly decent, no reason to consider anything stupid that would trash your credit. It also doesn't make sense to just sell it now and take the $35K cash hit with nothing to show for it when you can invest the $26K to keep an asset that has positive cash flow.

†I completely agree that the OP needs to pay off the second mortgage. As to whether the house should be sold or rented out, the purchase price is a sunk cost and should have no bearing on the final decision. There's nothing wrong with renting out the house, but that decision has nothing whatsoever to do with whether the OP bought the house at the top of the bubble or not.†

People are incredibly susceptible to the loss aversion phenomenon (https://en.wikipedia.org/wiki/Loss_aversion ), which shows up in most responses in this thread, including yours. This tends to lead to sub-optimal decisions. Once again, in this case, the decision of what to do with the house should have nothing whatsoever to do with whether the OP would be making or losing money at its disposition, as the case for and against converting it into a rental is exactly the same regardless of whether the OP would be making $35K or losing $35K on it.

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geo123 said:   
RealEstateMatt said:   If it were me, I'd pay off the $26K 2nd mortgage from savings, and refi the first. After 6 months or so, rent the house out and move to wherever it is you want to live.

Since the place would be cash flow positive without the 2nd mortgage and your income is fairly decent, no reason to consider anything stupid that would trash your credit. It also doesn't make sense to just sell it now and take the $35K cash hit with nothing to show for it when you can invest the $26K to keep an asset that has positive cash flow.

†I completely agree that the OP needs to pay off the second mortgage. As to whether the house should be sold or rented out, the purchase price is a sunk cost and should have no bearing on the final decision. There's nothing wrong with renting out the house, but that decision has nothing whatsoever to do with whether the OP bought the house at the top of the bubble or not.†

People are incredibly susceptible to the loss aversion phenomenon (https://en.wikipedia.org/wiki/Loss_aversion ), which shows up in most responses in this thread, including yours. This tends to lead to sub-optimal decisions. Once again, in this case, the decision of what to do with the house should have nothing whatsoever to do with whether the OP would be making or losing money at its disposition, as the case for and against converting it into a rental is exactly the same regardless of whether the OP would be making $35K or losing $35K on it.


Sooooo if you have the choice between keeping an asset that you already own and having it produce income or getting rid of an asset you own and losing money, you think it makes no difference whether or not you're going to lose money or make money and you should sell or not sell based on whether or not you feel like continuing to own that property? Cool, then sell me all your properties at a substantial loss if you ever don't want to own property. I love buying discounted assets from people who make emotional decisions over rational business decisions.

Loss aversion plays 0 role in the advice of what I would do. The $26K investment of paying off the 2nd mortgage and refinancing the first will make the house cash flow positive as a rental by a few hundred per month according to OP. That would be around 14% ROI on his $26K in addition to the mortgage pay down. By FWF standards, that's a pretty good investment and has nothing to do with loss aversion.

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RealEstateMatt said:   Sooooo if you have the choice between keeping an asset that you already own and having it produce income or getting rid of an asset you own and losing money, you think it makes no difference whether or not you're going to lose money or make money and you should sell or not sell based on whether or not you feel like continuing to own that property? Cool, then sell me all your properties at a substantial loss if you ever don't want to own property. I love buying discounted assets from people who make emotional decisions over rational business decisions.
Econ 101: once again, the purchase price is a sunk cost, so the merits of renting out this property or selling it outright have nothing whatsoever to do with how much you paid for it. If it makes financial sense for the OP to rent out this property, it'll make sense to do so regardless of whether it had been purchased for $150K or $50K.

Again, here's a basic explanation (https://en.wikipedia.org/wiki/Sunk_costs†): "Only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that economic actors should not let sunk costs influence their decisions. Doing so would not be rationally assessing a decision exclusively on its own merits. Alternatively, a decision-maker might make rational decisions according to their own incentives, outside of efficiency or profitability. This is considered to be an incentive problem and is distinct from a sunk cost problem.Evidence from behavioral economics suggests this theory fails to predict real-world behavior. Sunk costs do, in fact, influence actors' decisions because humans are prone to loss aversion and framing effects. In light of such cognitive quirks, it is unsurprising that people frequently fail to behave in ways that economists deem "rational". Sunk costs should not affect the rational decision-maker's best choice."

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If you can, rent it out even if you don't want to actively manage it. There are property managers for a nominal fee. Also pay off the 2nd mortgage as fast as you can.

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I know I'm repeating what others said: pay off that high-interest second mortgage today. It's not doing you any good to have 2 years worth of income of savings and to pay 8.7% on that loan.

The rest of the decisions (refi first mortgage, rent it out, sell it at a loss, etc) are completely independent from that step. As someone else hinted at, if you do refi, do it while you are still occupying the property as the interest rates will be better for owner-occupied.

If I were in your shoes, I'd be renting the property out and move closer to work.

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geo123 said:   
RealEstateMatt said:   Sooooo if you have the choice between keeping an asset that you already own and having it produce income or getting rid of an asset you own and losing money, you think it makes no difference whether or not you're going to lose money or make money and you should sell or not sell based on whether or not you feel like continuing to own that property? Cool, then sell me all your properties at a substantial loss if you ever don't want to own property. I love buying discounted assets from people who make emotional decisions over rational business decisions.
Econ 101: once again, the purchase price is a sunk cost, so the merits of renting out this property or selling it outright have nothing whatsoever to do with how much you paid for it. If it makes financial sense for the OP to rent out this property, it'll make sense to do so regardless of whether it had been purchased for $150K or $50K.

Again, here's a basic explanation (https://en.wikipedia.org/wiki/Sunk_costs†): "Only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that economic actors should not let sunk costs influence their decisions. Doing so would not be rationally assessing a decision exclusively on its own merits. Alternatively, a decision-maker might make rational decisions according to their own incentives, outside of efficiency or profitability. This is considered to be an incentive problem and is distinct from a sunk cost problem.Evidence from behavioral economics suggests this theory fails to predict real-world behavior. Sunk costs do, in fact, influence actors' decisions because humans are prone to loss aversion and framing effects. In light of such cognitive quirks, it is unsurprising that people frequently fail to behave in ways that economists deem "rational". Sunk costs should not affect the rational decision-maker's best choice."

††
You are correct in the regard that it is Econ 101 you're using....which in this case is an oversimplification. Your example is flawed. If Op had bought it at $50K, it would be MUCH better to sell it and capture the profits since he wouldn't be subject to capital gains vs keeping it long term as a rental and losing the tax free gain.

OP can have this property be an asset that produces $3K+ per year, or sell it at a $35K+ loss right now. One makes much more financial sense than the other given the information OP provided about their financial situation.†

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RealEstateMatt said:   If it were me, I'd pay off the $26K 2nd mortgage from savings, and refi the first. After 6 months or so, rent the house out and move to wherever it is you want to live.

Since the place would be cash flow positive without the 2nd mortgage and your income is fairly decent, no reason to consider anything stupid that would trash your credit. It also doesn't make sense to just sell it now and take the $35K cash hit with nothing to show for it when you can invest the $26K to keep an asset that has positive cash flow.

††This is really good advice.† Well said.

Skipping 35 Messages...
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I thought the same thing about property tax, then realized it was probably pre-paid for the full year on the buyers behalf or OP wouldn't have mentioned it. Basically the part of the contract where the buyer repays the seller for the property tax is zeroed out.

Given the fact that the OP has the reserves to pay cash, I would guess the $6500 in odd concessions isn't really enough to tip it either way. It would be nice to have a second opinion, but probably doesn't matter on top of the loss the house took anyway.

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Edit: †Ah, OP and I crossposted. †

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