What Would You Do? Solve This Real Estate Scenario

[David Kilgore]

Hello BP, I am a teacher in the state of Georgia. During one of my math lesson's I had an epiphany. In my class I have my students come to the board to solve a problem. With all the different math strategies these days, kids are able to solve the simplest problems using a wide variety of alternative strategies. Some that work better than others, it usually is dependent on the type of learner you are. Anyway, once my student solved the equation, the other students in the class all had an aha! moment. All the students loved the strategy that she used because it made solving the equation so simple. I thought to myself, students sharing with other students can be incredibly beneficial during the learning process! Why am I not doing this on biggerpockets!? I could post a hypothetical real estate scenario and see how the rest of the community finds a solution for the seller. This would be a great property analysis exercise for us to go through and I am sure we would all learn something in the process. 

Scenario:

The year is 2007. The seller buys a flip for 115,000 right at the top of the market. He initially puts 5% down on the property and gets an interest rate of 8% for 30 years. The house is a 3 bed 1.5 bath ranch, 1300 square feet and is in prime condition at the time of purchase.

Fast-forward to now. The seller gets a new job and needs to move. He is current on all of his mortgage payments. However, property values in his neighborhood has taken a negative turn and have not benefited from recent overall market appreciation. Similar comps in his area are anywhere from $80-$110,000. Not to include the wear and tear his house has taken during the ten years he has occupied the property. The property is rental ready, but will take some work to get to full value. Repairs are estimated to be $5,000. Estimated rent that can be collected for this property ranges from $950-$1,100. The seller is asking $110,000 and is selling the home on his own. No agents involved. 

Given this information, How would you solve the sellers problem? 

[Jay Hinrichs]

well that's easy either short sale or lose money if he has equity or rent it .. and hopefully it pays for itself.. are you looking for some magic formula here.. real estate is simply basic numbers.

[Matt Henshaw]

Try selling the property as stated .....renting as @Jay Hinrichs indicated could be an option, but only if the outlook for the area is primed to move upward because the amount of money and risk of renting would not be a good return on his investment.  Also, having the mortgage (with hardly no equity) and looking at purchasing a house at his new destination could be hard to do.  Could also refinance to get a lower rate, but he was already at 30 year.

[Andrew Johnson]

So the seller has had an 8% mortgage for the past decade and has been unable to refinance? Didn't walk away when values cratered and the value was probably $60K? Never made a request for a loan modification? Even after 10 years of some portion of the mortgage going to principal pay-down there's still no ability to refinance? While having a job?

Hmmmm...I'll go out in a limb and say this owner shouldn't be a property manager, likely doesn't have capital for reserves, etc. Sell, take the loss if there is one, move on with life...