Hi all,
I really need a big help here and I will greatly appreciate any comments. Here is my situation, as an immigrant 7 years ago, I decided to buy a house 5 years ago and I met with a local Realtor in my town of Texas. He advised me to buy a 4plex, so that I live on one side and the other 3 tenants pay for my mortgage, then after 3-4 years I can take the equity to buy my personal house. It sounded like a good plan. I had zero knowledge of real estate (price, inspection, neighborhood and so on). The buiding was just 2 years old we purchased.
Now 5 years after, I have lost average of $10,000 each year due to bad tenants, many months of vacancies, advertisement, repairs. It was later I found out that the neighborhood is not where most people want to live and that the house was in the market for over a year and the other 3 of 5 4plexes in that neighborhood has been foreclosed on because of what I am going through.
The property has only appreciated $25,000 after 5 years. I have listed it through another realtor since August 2006, we have not got a single offer, even though I am not interested in any profit, just want to sell it what I am owing. I maintain it, no damage, nothing except it may need new carpets. I am afraid if I let the bank foreclose on it, my excellent (780 FICO score) will be damaged. “We buy ugly houses” people are not interested either. :banghead
Pls what can I do?
Everything that is for sale has a “clearing” price. Why don’t the “We Buy Houses” guys want it? Is it because of price? Sounds like you want to sell it for retail (and maybe above since no one cares at this level), while the “We Buy houses” guys buy for wholesale…
Also, when u say that the property has “appreciated only $25000 after 5 years”, what are u basing this on? What do comps in the area go for? It has only appreciated that amount if someone is willing to pay that amount… and it doesn’t sound like anyone will pay that much…
I’ve read “propertymanagers” posts here and this is a classic example of the warnings he gives readers about paying too much for rental property. His 50% of yearly gross rents= purchase price, would have saved you a ton of grief.
Read it and LEARN folks.
I was really naive when I purchased the property (just 2 years in the country). I trusted the Realtor.
The realtor is not responsible for your mismanagement. The basic job of a realtor is to facilitate the purchase of the property. Also due to fair housing laws, there’s only so much a realtor can say about a neighborhood and predicting it’s future desirability is not anything that can be relied upon. Property management and landlording is a separate business.
The purchase price has nothing to do with the sale price. If you want to sell it, you have to price it at the market which it sounds like it’s not at. I’ve done several deals recently where the seller sold for less than their purchase price. This means that not only did they lose the money on their purchase with closing costs, but when they sold, they also had to pay a commission so in effect instead of a 10k loss on paper, it was more of a 20-30k loss. But they didn’t want to carry it so they did what they had to do. Doesn’t sound like you’re at that stage yet.
You’re also leaving out a few other details. What’s the rent for those 3 units like? It’s easy to rent out a unit, just keep dropping the rent til it gets rented.
You didn’t really post any other numbers, but one other option would be to rent out your unit and just let a management company handle renting out the other units and managing it. May not be an option if your mortgage is too high.
Oh and why would the bank foreclose on the property? Are you making your payments? What’s the mortgage like now?
I am interested. I will give you $10 for it, sight unseen. I’m not trying to be silly here, but rather to point out that someone will buy it at the right price.
Now 5 years after, I have lost average of $10,000 each year due to bad tenants, many months of vacancies, advertisement, repairs. It was later I found out that the neighborhood is not where most people want to live and that the house was in the market for over a year and the other 3 of 5 4plexes in that neighborhood has been foreclosed on because of what I am going through.
What happened to you is absolutely the normal ending to most REI newbies. You paid too much for the property and that caused your mortgage payment to be so high that it eliminated all your profit (and caused you to lose $10,000 per year). OUCH! The reason 3 of the 5 other 4plexes in the neighborhood have been foreclosed on is that their owners paid too much also. The truth is that you are in trouble. It will take money to fix this problem either way. The first solution to your problem is to keep making up the rental loss out of your pocket. Paying $10,000 per year to own a house is not much (I wish my payment were that low). The second solution is to LOWER THE PRICE. If you paid retail for the property, you will have to deeply cut the price to get a successful investor to buy it.
There is a 6 unit building in my town currently for sale for $160,000. Just like you, the owner paid too much and is losing his shirt. I must make money on my rentals and have offered $80,000 for the building. What will happen to the building? Either the owner will come up with enough of his own cash to sell the building to me or another real investor, or he’ll continue to lose money until the bank takes the property back and then I’ll bid on it again.
There is one last thing that you might try. You might advertise to California investors using the internet and maybe even newspaper ads. There are many uneducated newbies from California that will pay retail for properties in other states thinking that lower prices = profits. We’ve got a bunch here in Ohio and almost without exception, they’re losing their butt. Some investors I know specifically target California newbies for their flips.
Good Luck,
Mike
I really appreciate all your comments. I have since realized I paid too much for the property and now know the importance of LOCATION LOCATION LOCATION. It has been a pianful lesson but I am ready to sell it lower than what I owe so that I can move on.