My rental property is a money pit!

[Sara H.]

I bought a triplex in 2006 with plans of flipping it. I wasn't able to do it quickly enough before the market bubbled. So I've tried to set it up as much as possible. I was advised to set up an LLC to run the property as a business, and quitclaimed it in the name of the LLC. I've had the property listed for sale since 2007 at the amount I owe on it...with absolutely no luck in selling. Now I'm stuck with a rental property that is decreasing in value, is difficult to rent for the amount it went for a few years ago, is on an interest only ARM loan (huge regret), and now has a $6,000 emergency repair in process. Since purchasing this property I've gotten married and pregnant. I've been dumping all my savings into keeping this property afloat but I just don't know how I can continue to do that with a child coming. I feel absolutely horrible at the thought of defaulting but I don't know what else to do. I've lost about $40k in cash already on this property in the form of repairs to flip it, lost rents over the last 5 years, and now this emergency repair. I'm sick over the thought of adding to the foreclosure crisis but what do I do? So far I am current on the loan but I most likely will not be able to keep that up for more than another month or two.

So here are my questions:
What do I need to be aware of before I call my mortgage company? Should I try for a short sale (I've heard they are basically impossible in Utah)? If it goes into foreclosure do I still collect rents? If it goes into foreclosure are any of my personal assests (my home) at stake... what can the mortgage company come after? If it forecloses will it effect anything I currently have - or just my credit and all that entails?

Thank you in advance for any advice or wisdom shared!

[Joel Owens]

Will your insurance policy cover the repair??

What house do you live in now?? If it's too big downsize.If the interest rate is too high and you have equity refi.

Sell the house you live in now and move into something smaller with less of a mortgage.

Try to do a loan mod on the house you are living in now.You don't have to miss payments just document a hardship. Hardship is easier on personal residences than investment property.

What year was the property built?? .Generally residential 1 to 4 units go by comparable sales instead of the income approach.

Having said that you have A,B,C,D location and A,B,C,D age of the building.

Generally an building with an A age 1 to 12 years has a CAP rate of around 6.5%, B 13 to 30 about an 8 to 9 CAP,and a C 10 CAP and up,D 40+ years old usually the investor buyer wants a 12 CAP or more going in.

You just bought at the wrong time.Do you have the ability to purchase another property that you get an awesome deal on and create a bunch of equity??

You could use the better cash flow to offset this property to preserve credit until the market returns.

The real question is do you want to hold it that long to wait for a return??

You must have tried to buy that in appreciation.

Given income at 100% occupancy is 25,200 a year and with 50% costs.

10% property management
30% Operating and expenses
10% vacancy loss

You are at 126,000 sales price and you said your property doesn't average fully rented just sometimes.

You will have to float it for awhile or do a loan workout or cut elsewhere or just let it foreclose.

You can try to short sell it as well.What does your credit look like now?? Are you the only one on the loan??

If your credit was trashed could your husband qualify for buying investment property and taking advantage of a down market??

Hope it helps.