Keep a rental property and my home? Help!

[rivvercoon]

Hello all, been lurking here a couple months, first post. I'm 28, live in MN with fiance. She is on SSI. I bought a duplex on contract for deed from our landlord at the time a couple years ago. Then bought a single family home in March 2013. Gross pay from my job is about $39k.

A few months ago I finally decided to write up a budget and see where my money goes. Have 5 credit cards, students loans, etc. I realized I was just breaking even with my money coming in and it scared me! First time in my life I ever even thought of bankruptcy. Had 2 smaller vehicle payments, sold one almost immediately. I have about $21k that I could discharge. Most has just accumulated over the past few years from poor spending habits, nothing horrific happened that got me to this point. I was laid off work for 11 months in '09-10, so that didn't help.

So my question is, should I file? The rental clears about $250 a month after all expenses. It is not worth what I owe on it, so no resale equity in it. My home has maybe $5k in equity, considering I just purchased it. I've met with 2 attorneys, both seem to think it would work. I feel bad about doing this and am not sure if the amount I'd want to discharge is totally worth it. I'm considering selling the other car with a payment of $150 a month, and buying a beater vehicle. Tighten the budget up and try and get out myself. Any thoughts??

[tobee43]

welcome to the forum rivvercoon!

in answer to your question: should you file? really, no one can answer that but you. in the scheme of one's life 21k worth of debt seems to be workable, if you are still in a position to work with your creditors. however, i understand 21k in total to someone making 39k the amount may feel unsurpassable.

is it possible to raise rents at all on your income property? or if you are paying utilities or other costs related items that may be passed on to your tenants? for example if you have to contract for snow plowing maybe MN is state where you can hand the tenant a bucket of salt and it's their responsibility. ( there are some states that is absolutely allowed). it ends up saving you money and also putting some back in your pocket.

if you can hold out, you can eventually and hopefully turn it around and have your income property as an asset as opposed to a liability. it's difficult for many to get mortgages so hopefully rentals will increase in value as time goes on. remember if you can squeeze this out it's nice to own the property and have someone else paying for it.

if you can i would see about working with your creditors if you can, bk is a personal decision and should take much thought and planning if that is the direction you chose to go.

best of luck and keep on posting!!! there are many out there to help.

[justbroke]

I can answer this question quite simply: no.

As a former landlord with investment properties, it is absolutely not worth the pain. Stay in your home and discharge the rental property. If you want to continue operating them, they are in the same city/area, and you are not having maintenance issues, then go ahead. If that property is not in perfect condition (does not or will not need a new roof in 5-10 years, no plumbing issues, no appliance issues, no tax issues, insurance paid on time each year), then maybe I'd say keep operating the rental. However, I've never heard of a "perfect condition" rental except for those that just replaced all those things, or newly constructed properties.

[frogger]

The rental clears about $250 a month after all expenses. It is not worth what I owe on it, so no resale equity in it.

justbroke gave you great advice. In addition to what he said, all you need is a month or two vacancy, an a/c unit to go out, a plumbing disaster, and you're screwed.

Get out now, while you can.

[tobee43]

i didn't see op mention the rental properties needed a ton of work. even if they didn't it could run into a mess, that of course being the vacancies and not being able to keep up with the payments. (we both got NO sleep on that one last night ourselves, so i really get it).

op is also talking about a total of 21k as far as total debt, if it were 121k i'd run the other way. sticking it out is not for the weak of heart, but if you do and if you can, it can reap beneficially in the end.

[TheBajan]

I am going to agree with JustBroke and tell you that if you have a rental with zero or negative equity, you are only clearing $250 a month, you really should let it go. You are one maintenance issue away from disaster. One tenant who just won't leave until they've trashed the place out of sheer spite. We used to have a few rentals. We now have our home and one rental. The only reason we have kept it is because it is completely paid for and brings a very good positive cash flow. We have 100% positive equity in it. Otherwise, we would have dumped it.

This is assuming you decide to file. Reading your post, it sounds like you may be on the fence financially. While I would caution you not to make some of our mistakes (ie depleting retirement accounts, running your debt to $150k, etc), I would advice that you attempt to get on a budget, tighten up and see if it's possible to save your self from BK. Either way, you have to learn to budget or BK won't help you. If you don't file, you may still want to take a really hard look at these rental properties and consider alternatives to keeping them. You don't sound like you are really in a good position to take the risk that is involved with them at this time in your life.

Best of luck to you. Please do stick around and keep us posted. We are here to help whatever you decide to do.

[tobee43]

now the question would just how to let that rental go? let it go into foreclosure? attempt to sell it? each of these will take time an hit the OPs credit maybe not as badly as a bk, but it will be a hard hit.

i know people don't like renting when houses are for sale, so, then if you let the mortgage go, that will end up in a bad place as well. i would still attempt to work with your creditors and see about increasing rents. so you have two clear paths that have been suggested and that you can consider. of course as TheBajan mentions i would never use any savings or retirement funds to help you keep afloat.

[bcohen]

Since the rental is apparently generating positive cash flow of $250 a month--after paying the mortgage, insurance, property taxes, and other expenses--why would you file for bankruptcy now and try to get rid of it? Even if the advice which others have posted is true that you are "one maintenance issue away" from losing money on the property, why wouldn't you just wait until the roof starts to leak, or the supposed "spiteful tenant" comes along and trashes the place? You could always file for bankruptcy at that time, and surrender the property if it becomes a money pit.

It seems kind of silly to give up an income of $3000 per year, which may increase as market rents rise, just because the property can't be sold at this time due to no equity.

[jst4f]

We also owned rental property which is what drove us to BK. At the time of filing they were all under water. We dropped those with negative cash flow and tried to remortgage those with positive cash flow. Those we dumped, we quit paying the mortgage and waited for the short sell or foreclosure. We kept the rent and the banks never asked for it. (One did but once we told them they had to go collect it and deal with the HOA rules, etc they withdrew the request.). We held on to a couple of them long enough to sell at a small profit. We kept an apartment and a four-plex and both have gained in value so we might sell them over the next year or two. Before selling or letting the bank take them be sure to look at the tax consequences on depreciation recapture etc. IMHO. If you can cut expenses and hold on for a year or two, the value my go up so you can sell the rental or the rents may go up.

All investments have risks: stock market may crash over the government stupidity, bonds fall in value due to increasing interest rates, etc. RE investing has its own risk, as I painfully know. Evaluate your rental property and the local RE market and determine your risk and take action accordingly. Again, if you can hold out for a year or two by controlling your expenses, you might be better off than dumping the property and going down the BK path.

[AngelinaCat]

You are twenty-eight years old. You don't have that much debt yet. If you can tighten your belt, and learn to live on a budget, I would rather see you do that now, and not do a BK at this time.

BK is like the 'Nuclear Option' for when your debt is so bad from medical bills or prolonged unemployment, that you have no other choice. Once you file a CH7, which is what it sounds like you would qualify for, you will NOT be able to file again for 8 years, unless you file a CH13.

You mention a fiance that is on SSI. Is this temporary? Medical? If medical, could the situation get worse? When are the two of you planning to marry? What, if any debts does this person bring into the mix?

Some things to think about....

[rivvercoon]

Thank you all for the responses, it's great that this forum is active and has people that seem to care! The rental property is on a contract for deed, so if things go south with maintenance, tenants, etc., worse case I will just give it back. I currently have awesome tenants that I've almost been spoiled with. The property itself is in overall good condition, and I have the the furnace and central air on a coverage plan through the gas company, so no real worries with those.

I have been going through this stuff over and over for weeks now, sitting on the fence on whether to file BK 7 or not. I've given the budget more finessing and at this time have decided to try and stick it out and get out of this mess myself. I work sat, sun, mon 12 hour shifts, and just inquired about a part time job that is a perfect fit for me to do during the week. Talked to the owner of the company (family owned coach bus operation), and he seemed very eager for me to apply to drive during the week for them (their busier time), as I currently have a class A CDL.

[rivvercoon]

BK is like the 'Nuclear Option' for when your debt is so bad from medical bills or prolonged unemployment, that you have no other choice.

I like that you put it that way Cat, and I'd have to agree at this point. I'd rather keep that "card" available to me in case of unforeseen catastrophes. This whole thing has just been a major eye-opener to me. But I'm glad I can see whats really going on and can hopefully fix it. If the driving job doesn't work out I will be applying all over for a part time job. I need to put more water in the river to break the "log jam" up!! (So to speak)

My fiance is on SSI permanently, until we get married that is. She will lose her benefits if we do, so at this point we financially can't get married.

[AngelinaCat]

Congrats on the possibility of a driving job. I understand that the pay can be very good.

Please keep us posted on how you do.

[AngelinaCat]

My fiance is on SSI permanently, until we get married that is. She will lose her benefits if we do, so at this point we financially can't get married.

I understand that she will lose her benefits if she gets a job, but I know of people who are married and still have their benefits. I thought she would carry her SSI into a marriage...

[rivvercoon]

She is on SSI for a vision problem. She's had the problem since birth. SSI office told her as soon as she gets married benefits go away because I make more than $22k a year. So yeah I would not be able to afford her at this point!