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Updated over 13 years ago on . Most recent reply

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Adam Smith
  • Real Estate Investor
  • California
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19
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Upside down in rental, what to do?

Adam Smith
  • Real Estate Investor
  • California
Posted

My Brother-In-Law bought a condo in Sacramento about 6 years ago when the home prices there were still very high. He initially had a good investment going for him, but now things have radically changed.

He owes $105,000 on the condo still. He has a $250 loss every month. They are going to raise the rent slightly in October, but still a big loss. There are nearly a dozen of these condos in the area in foreclosure, most of them selling for $20-$30K.

What should they do? They are thinking about just letting it go to foreclosure. They are not big-time investors. They have new cars and a nice house, so don't really need credit that much. I told her the value of that property would eventually come back up, but who knows when? I would hesitate to take that kind of hit on my credit, but their situation is different since they don't plan on buying for a while. Any thoughts?

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Chris Martin
  • Investor
  • Willow Spring, NC
3,434
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Chris Martin
  • Investor
  • Willow Spring, NC
Replied

I'm missing something. A person's rental investment doesn't depend on the market valuation. The OP says "He initially had a good investment going for him, but now things have radically changed. He owes $105,000 on the condo still. He has a $250 loss every month..."

So initially he was making money? That's my view of a "good investment". So what makes for a $250/month loss? Did rents fall $400/month or something? Did HOA fees go up $300/month? If he had an average ARM, his intrest rate would be falling over the last few years, not increasing. What has "radically changed"?

I'm speculating that this was never really a "good" investment and that the cash flow negative aspect wasn't an issue 6 years ago since prices were stable or going up.

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