I'll try and keep this concise as possible. As many of you know, I'm going through a divorce. We have two homes in GA that are currently being leased. One of the homes is doing just fine. For the most part, the rent is being paid on time.....all that. The second home is the potential issue. We're currently upside-down on the house (by around $35,000 including real estate fees to sell). The current renters are in the process of being evicted. My wife and I aren't in a real good position to keep making the mortgage payments with no rent coming in to offset those expenditures while we decide what to do. So, the way I look at it, we have a number of options: 1) Immediately have it leased out to someone new, wait for the market to recover, then sell it at that point. Would have to become a "business partner" with the soon-to-be ex-wife. 2) Continue to lease the home, while concurrently listing it on the market. (was told this is a VERY difficult way to attempt to sell a home.) 3) Quickly dump (sell) the house at a significant loss...just to get out of it and move on. (those costs would have to come out of our IRA.) 4) Lease-Option. Price it attractively in order to do the deal as expeditiously as possible 5) Walk away from the house. I have a question in this regard. If we walk away from it (I suppose, effectively declaring bankruptcy, would/could this in any way affect the status on the other home - which, BTW, I'm hopeful to be able to keep as the wife and I go through the negotiation process)? There's probably more things which would need to be factored in, but this is essentially the crux of the matter. What to do???? Thanks In Advance! ABM
Mortgage rates are extremely low, would refinancing help? Also you say you're upside down $35k but what is the current market value of the house? If it's $300k in today's market $35k isn't that bad. If the house is worth $100k you're not going to see that recovery for a few years? It seems like your wife is the one pushing for divorce. I'd find out how bad she wants one. Give her that house and you take the other one. Did you guys borrow against or use up most of your retirement? It's only fair that you keep the better of the 2 houses and let her keep the one that is going to take longer to get in the black.
Good questions: 1) The 1st mortgage on House #2 is $136,000. The 2nd HELOC (her business loan) is $44,000. That equals $180,000. The Zillow estimate is $174,000. The "real" market value is somewhere around $165,000. 2) It is my goal to keep House #1. I'm willing to use my portion of the IRA to help "get rid of" House #2 in exchange for keeping House #1. The caveat is, House #1 also has a HELOC (again, related to her failed business) on it. A bit better situation, though...and I'd be willing to take on that HELOC debt insaid arrangement. The 1st mortgage on House #1 is $63,000. The 2nd HELOC is $50,000. The market value is around $120,000, so about break-even. However, I'm 8 years into a 15-year mortgge @ 4.75%. I think there's some good long-term value there. Oh, and yes, the wife is the one pushing for the divorce.
Tell her you still love her and want to go to marriage counciling, that you know she'll come around in a few years and love you again. Then she'll be much more receptive to taking your offer of you keeping house #1 and she takes house #2 without touching your IRA.
Remember that as long as you actively are trying to lease your second house, you can write the losses against your personal income. So if you're making say $60K/year you may owe around $8K annually in federal taxes (just making up numbers for the example). Then say you're losing your amortized mortgage interest, plus utilities, taxes and other leasing expenses, and they add up to a net of losing -$3,000 in actual loss of lease revenue while you aren't able to get someone in there (whether you're trying to sell it or not). Then you get to deduct that $3,000 against your own income as a loss of lease income. Just another thought as I would rather have a house that is upside down and take it as a tax credit against my 9 to 5 now, then sell it 3-5 years from now when the market has it back as a profit for me.
Seriously, the fair thing is for you to each own 1/2 of each house and everything goes from there. You each pay half the negative on the one, etc.
True, but I was (am) willing to pay the negative on both houses in order to keep one of them. She has already stated to me, "You've handled all of the investment stuff. I don't want any part of it. I just want to be free and clear of all the properties." For this discussion, I'm just trying to make the best decision on handling House #2. My gut instinct is to price it for a quick lease/option. The other is to walk away from it. Problem there (I think) is that it will jeopardize my potential ownership of the other house.
Well, you should buy her 1/2 equity in both properties, or she should pay you the negative equity on either/both. Use that in the settlement arguments.
And you might find you can rent the underwater property so you have a couple $hundred negative cash flow, saving your credit score while you gradually pay down the mortgage. How many years left until you own the place?
All your scheming and planning may or may not earn you a bit of profit at the end. Give both houses back, declare bankruptcy and move on with your life.
I'm not sure this is entirely true. I think you have to actually rent the house out to take the loss. In any case, there's more than you describe. You can depreciate the property over 30 years. If you paid $300K for it, that's $10K per year you can deduct from your income before taxes. You do have to pay back the taxes on the $10K when you sell, because your basis in the house is lowered by $10K/year and your profit on the sale goes up by $10K x #years you deducted the depreciation.
