Comments on: Upside-down, still paying, and stuck

By: Sarah

Sarah — Sat, 02 May 2009 21:10:18 +0000

My husband and I are stuck in Las Vegas too… We saved for several years and bought near the top of the market. We paid 300k for our home and put down 60k. We have a 30 yr fixed rate at 6%. We currently owe 230k and our home is now worth about 140k. My husband’s income is based on tips which have gone way down (I’m salaried luckily). But we’re STUCK big time. We don’t have a lot of money and we work hard to pay our bills, but it’s very frustrating that our tax money is bailing out others and we aren’t getting any help. It’s those people who made irresponsible decisions that ruined it for those of us who tried to do everything right. Ugh…

By: Turn One Pound Into One Million

Turn One Pound Into One Million — Thu, 29 May 2008 10:11:20 +0000

It is so scary that this is happening to people. I am stuck in my house now as we bought it when we had two incomes and borrowed the maximum amount we could. Now we only have one income coming in we cannot possibly borrow more money and so cannot move. It means that the children have to share a bedroom but we figure it own’t hurt them.

By: SmBizMan

SmBizMan — Wed, 21 May 2008 18:57:44 +0000

@kitty…

thanks so much for sharing! I think Mighty Bargain hunter could make a post about exactly what you just described.

If you think long-term as an investment, holding now may be better than selling now, especially when you factor in the “transaction costs” of real estate. Realtors fees, closing costs etc and really add up.

I guess in each case one would need to take a sharp pencil to the specific case and make a decision.

But at least there is a possible better way out than flat out losing tens of thousands of dollars.

SmBiZMan

By: kitty

kitty — Wed, 21 May 2008 18:16:54 +0000

Renting out was my suggestion too on FMF blog. I rented out my old condo in the 90s instead of selling it at a loss when I decided to upgrade. Worked out really well. The only thing is – he has to have some money in savings to deal with the periods when the property may stay vacant. The rental market situation in the area is important.

The numbers have to make sense, but because of tax breaks $300 shortfall may not be so bad. First of all, when you rent out, not only the mortgage and taxes are deductible, but also repairs, homeowner associations fees, some other expenses. But the biggest thing is depreciation. Say his property value today is 200K. Divided by 27.5 (standard period for residential rental property depreciation) it is over 7000 a year. This is the amount he gets to deduct from income. Assuming he pays 1/3 of his income in state/federal taxes, it could be extra $200 a month savings.

Sure, if he sells his property later for more than base-value – depreciation he’ll have to give some of this money back. But in this case, he’ll have gains from sale. Additionally, recaptured depreciation is taxable at max 25% whereas he may be in higher tax bracket. Also, by that time he could’ve invested this money he gets from uncle Sam.

By: MoneyBlogga

MoneyBlogga — Wed, 21 May 2008 13:55:49 +0000

Regarding rentals, they are not “easy money”. Being a landlord can be extremely stressful. If he’s moving away from LV, he will either be an absentee landlord (not good) or he will need to hire a property management company (another iffy solution). Tenant turnover can be tremendous – how is he going to meet and select tenants? A basic rental investment rule is to buy an investment property within a 30 minute drive from your home. Sometimes, the bullet must be bitten regarding whether to try keep holding on or letting go so that one can move on with more important things in life.

By: Rachel @ Master Your Card

Rachel @ Master Your Card — Tue, 20 May 2008 07:11:21 +0000

This is very unfortunate for the people in this position but we must all learn a lesson from it. Buying a house is a big undertaking and we must be sure that it is the right house for us, in the area that we want to live before we buy. Of course he does have the option of renting out the house and using that rent to pay rent himself elsewhere but that is obviously a complicated option.

By: SmBizMan

SmBizMan — Mon, 19 May 2008 13:41:50 +0000

@ericabiz: Obviously, the math has to make sense. But, just as real estate value is bound to go up, RENTS also go up. So, even if he starts out with a $300/month loss, after 2 or 3 years, it may be a much smaller loss. After 5, it may even be cash flow positive. And after 10 years, the value may be back and he will have had a cash flow positive rental for 5 years.

You’ve just got to think long-term here.

However, like you said, if he is burning though $1000/mo that wouldn’t make sense…

By: ericabiz

ericabiz — Mon, 19 May 2008 06:09:39 +0000

@SmBizMan: Your math may not make sense in this person’s case. Let’s say he rents it out as a loss of $300/month on the mortgage. After 10 years, that’s a $36,000 loss, and that doesn’t include maintenance, property taxes, or the fact that rental prices are actually going down in overbuilt places like Vegas.

It’s unlikely that, having bought at the top, he could rent it out for anything approaching a full mortgage payment. He’d be better off doing a short sale and clearing the debt now than having an albatross hanging on his neck.

By: mbhunter

mbhunter — Sat, 17 May 2008 22:53:58 +0000

@SmBizMan: I see you think the recovery’s going to take a long time, too.

@TheMightyQuinn: Primarily the Realtors care about moving product because nothing good happens until there’s a commission. Instilling fear is one way to do that.

By: TheMightyQuinn

TheMightyQuinn — Sat, 17 May 2008 21:09:41 +0000

For years the NAR has been threatening folks if they don’t buy know “they’ll be priced out forever.” The flip side of that, is those who bought in the past few years may be “priced in forever.”