When to File Bankruptcy?

Question

I never thought I’d be in this position, but here I am.

So, I have a few rental properties, but the utilities, taxes, and insurance were all triple the amount forecasted. Over this winter, the utilities drained my accounts completely. I raised rent, but everyone left. I now have no income and no savings left. I can no longer pay the bills, and I have a lot of debt from renovating a unit that was never able to be completed. Nothing is late at this point, so does it make sense to start the process now?

I tried to plow snow this winter, but multiple mechanical failures netted a loss of over $2000 while working a lot  of hours.

A job is not realistic. I live in the middle of nowhere. There are no jobs. It’s not like I sit around all day. I work on these properties every single day. Even if they were making money, I still couldn’t afford contractors.

In fact, I don’t see how any of this works. I can’t charge enough to even cover the utilities.

Greg Scott · Answer

Before you go the bankruptcy route, I would look at getting out of one or more of the properties to eliminate debt and possibly put some cash in your pocket.

Do you have any equity in them?  What are they worth compared to what you owe?

I have a friend in Traverse City buying property.  If they are near TC he might be a prospective buyer. DM me.

Account Closed · Answer

• It must be at least two years since your bankruptcy case number was assigned.
• During this time, you must have re-established good credit or chosen not to take on new credit obligations."
•

FHA defines the Economic Event as:

“Any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower’s Household Income of 20% or more for a period of at least six months.”

It is strongly suggested that you talk to a bankruptcy attorney specifically. He will sort out your circumstances before filing either one.  There is a strategy to filing that will help you recover much faster than you think.

You don't mention if there is a bank involved or if you are making mortgage payments. But, I would first try to sell the properties on a Lease Option and get 10% of the selling price as the option fee. That means if you are selling the house for $100,000 the buyer gives you $10,000 and pays you rent, pays the utilities and taxes. When he pays you the other $90,000 he is "exercising the option" and then actually owns the property. He gets into a house without having to go to a bank and you get cash flow. There are a bunch of details but if you have enough people who want to own a house in the area, you will find someone willing to do a Lease Option and keep you out of bankruptcy.

If you didn't read this in it's entirety, you just skimmed over it, you don't have the personality to be successful doing a chapter 13. It requires some attention to detail.

Theresa Harris · Answer

Why not sell one of the properties that has some equity in it?  Are the houses in such a condition that they need work done on them every day?

You say you are in the middle of no where, but define that.  If you had rentals, you must have a community nearby and businesses or what did the tenants do for work?

Bruce Woodruff · Answer

I would do anything to avoid BK. It sticks with you forever (well 10 years).

Refi to get cash, fix up, raise rents and attract better tenants.

Sell one as @Greg Scott said.

Look for a money partner.

Sell them all and move your operations to a better location.

You can do this....

Henry Lazerow · Answer

$3000 a month utilities for how many units? Something seems wrong here.

Account Closed · Answer

Well, I listed the building and no bites at all, but not surprised. Renovated two of the apartments, and no interest whatsoever. There are no rentals available in the area, but I still can't rent these apartments.

Bruce Woodruff - Thanks for the positivity! I have been looking for a money partner, but I don't really know how to approach people in that manner, nor do I know anyone that has any money. Besides, I wouldn't be comfortable with someone else giving me money, especially after this monumental screw up. I do have a store font in the building and wanted to do a laundromat (none around), but I just don't have the capital to make it happen. Now, I lost the confidence to pursue anything like that. Just not sure about the area. I made a lot of incorrect assumptions already.

Theresa Harris - I made it sound like I was working on all of them, but it was just one unit I had to completely renovate by myself. They really aren't too bad overall, it was just the one unit that needed a complete renovation. The rest just needed touching up, paint, floor covering, etc. As far as the area, it's an island in Lake Superior. There is a university (Michigan Tech) about 15 miles away and there are a couple industries around. The people mostly work at places like bars/restaurants/healthcare. This area is mostly stagnant with some slight growth - 0.2%.

Mike Hearn - Thanks for all of the information, Mike! I did read it all and I don't know if I have any other choices. The building in question is on a commercial loan with a bank. I can't really do a land contract, and I have to get the NOI up within a year or I lose them anyway, along with my paid off house that I used for collateral. Not happy about losing my first house like that. So much work and time just flushed down the toilet.......... just like that!

Kaci Hunter - When I bought the building (6 units), the owner gave me his financial documents and everything on that sheet has been tripled, except the rents - those dropped. Tenants do pay electricity, but it's like $30-$40 a month. The gas is around $1200-$1500 and the water was around $900 and that also generates a sewer bill of roughly the same amount ($750). So, just for gas and water in the winter, it's over $3000 per month. These units were renting for $400-$500 when I bought them. I raised them to $700-$800, which I think is pretty reasonable, but everyone left. I was told that the gas would be around $500 and the water was supposed to be $200-$300. I also contested the taxes and I was denied. When I called the utility companies for bill history, I was told that they cannot give me that information.

As far as continuing to invest, I don't know. This has caused nothing but stress and loss of money. The whole point of this was to prevent those two things from happening, yet that's all I got for my troubles. Also, I get to lose a house that I had paid off. I guess the worst part is just knowing that I can't do it.

Anyway, thanks for the information! I do appreciate it, even if there isn't much I can do.

Account Closed · Answer

Not much equity, but the purchase was cheap. Maybe that could be an option. Being in the middle of nowhere may be an issue with getting market value.

It’s about 6 hours away from TC.

Thanks!

Kaci Hunter · Answer

I agree with what everyone else has said about trying to sell before going the bankruptcy route, or at the very least speaking with an expert about it. Would any of these be more successful as short-term or mid-term rentals?  Also you stated, "the utilities, taxes, and insurance were all triple the amount forecasted." If these are long-term rents, I'd have the tenants pay the electricity. Have you contested the taxes? Have you shopped for new insurance? Why was this so much higher than originally projected?

Ash Hegde · Answer

If you are interested in continuing to invest, you would be better off selling everything than declaring bankruptcy. It will make financing difficult for many years. It should be your last resort.

When to File Bankruptcy?

Most Popular Reply