Sometimes renting out an upside down home seems like a good alternative to a short sale. There are several things to consider when deciding to rent out an upside down home:
Will you make a profit? Investment property is generally purchased for the purpose of making money. If your anticipated rents fall short of paying the mortgage and expenses on the property – think twice. Making monthly payments for the privilege of being a landlord generally never ends well.
How much negative equity do you have? How long will you have to hold on to the property to break even? If you have significant negative equity, it may be many years before you are in a position to sell without short selling. Are you prepared to hang onto the property for the long term?
Have you considered the advantages of short selling as an owner occupant versus an investor owner? They are significant. If you have a change of heart later and decide to short sell after all, lenders are much more demanding with investors than they are with owner occupants. You may not even qualify for a short sale with certain lenders if you do not occupy the home. Having tenants in a home you are attempting to sell can be very difficult. If a short sale seems the most likely resolution, there are significant benefits to doing so while you still occupy the home.
Do you plan to buy another home? If so, do you qualify for the new mortgage while paying on the old? Rental income generally wont be considered until it has been documented for two years.
Are you really ready to become a landlord? Have you considered what expenses besides the mortgage will be involved? Do you have enough reserves to cover months of vacancy or perhaps eviction if it becomes necessary? Eviction in Connecticut can take many months, during which there may be no rental income. Who will maintain the property? Are you physically close to the property or will you need a property manager? What will you do if the tenants cause property damage? The decision to rent out an upside down home should never be taken lightly. Take all options into consideration, including a short sale. I have seen many clients rent out their homes only to seek out a short sale after realizing they made the wrong decision. If a short sale is your best option, sooner rather than later is always key to a quick recovery.
I recently found myself in the unfortunate situation of being underwater on the mortgage of my condo and unable to continue to afford the mortgage payments. My real estate agent at the time suggested renting the unit to cover the cost each month until I was no longer underwater. I thought this was my only option at the time so I agreed and listed the condo for rent and quickly ended up reducing the listing price to the point where I’d be losing money each month if I was to secure a renter. To add to the loss, I’d also be responsible for maintaining the property and have heard numerous horror stories from other renters who had experienced tenants refusing to pay, drawn out evictions, and ongoing legal fees. As time went on it was clear that renting was no longer a viable option and I started seeking out alternatives. A friend had asked if I considered a short sale, to be honest it was a topic I had no actual knowledge on but a ton of misconceptions. After doing some research online I decided anything was worth a shot but honestly wasn’t too hopeful. I found Minna’s contact information while doing my research; her team is the best in the state when it comes to short sales. After my first phone call with Minna, there was no question in my mind that I was finally on the right track. She listened to my situation and clearly explained the short sale process, timeline and what to expect at every point in the process. Within a month of having the unit listed Minna and her team had received an offer and quickly helped me move forward through the short sale process until the unit was closed on last week. What a burden they have helped me with, I can’t recommend them enough. I only wish I’d found them sooner.
Last Updated on October 9, 2018 by Minna Reid