Rent out the 2nd one, pay the negative, and take the write offs. You mess up your credit and you'll not have much financial flexibility for a long time to come.
My "goal" is to have Home #2 sold or lease/optioned, me retaining Home #1, and the the divorce finalized (with no additional strings or business arrangements) within 4 months.
Incorrect. The law states that you have to "actively manage it and attempt to rent it out". If you have a rental that you're advertising and for whatever reason nobody will come and actually sign the dotted line, and you can prove it was for rent and you actively were trying to rent the property, it is a "rental". And I know there's more to it (such as the depreciation), I was just trying to keep it as simple as possible for ABM. But I think you and I agree. Take the write-offs and you're writing off any expenses to the house and not losing the $35K out of an IRA today, but instead keeping yourself from paying federal taxes with those losses. Then you are simply waiting for the value of house #2 to go up again so you can sell it and capitalize on the profits while they are up and not down.
Hire a hit man. Collect the insurance. Pay off the notes on both houses and live off the rental payments.
I have a friend with a few houses around here and he lease/optioned his. BTW... I don't think you can just 'walk away' like you may think. It may depend on the state... but I believe in some states banks can go after your other assets. Generally people who default don't have any assets... =) but I would definitely talk to a lawyer if you are thinking about doing that.
That's what I'm gonna be shooting really, really hard for. Granted, I'll have to become a business partner with the ex-wife, but I think it will be worth it for us. One other thing I forgot to mention is that there's a balloon payment due (October 2011) on the HELOC of that home. We "may" decide to just go ahead and pay that ($42,000) off out of the IRA during the divorce settlement. At least we won't be charged that 10% early withdrawal penalty if we do it that way. Also, in doing so, it will immediately put us in a positive equity position. We would split those earnings upon the sale of the house.
I went through a divorce and had to pay off a $10,000 credit card that wasn't really mine (wife had it before we were married) and also $5,000 to refinance house in my name. I took it from my 401K... but it was right when the stock market was exploding and I lost a considerable amount out of my retirement. The only positive note is that the house that was worth nothing at the time of divorce, sold for over 100,000 more about a year or so later because of the housing boom. Karma. Oh... and work granted me a bunch of stock the day after my divorce was final that made up for the 401K mistake.
