Condo Reconstruction Nearing Completion & Need to Get Out

[Dylan Speer]

Hello BP,

I need some advice on what is the worst investment I've ever made.

Overview:

• - Purchased a condo in 2022 for $270k, with a 3% down payment. Currently owe $255k.
• - Mortgage rate is 6.125%.
• - Lived in it for a year, then moved out to rent elsewhere (where I currently live).
• - Rent was $1,750/month, but the mortgage was $1,900/month, plus an HOA fee of $360/month.
• - This meant I was out of pocket $510 each month.

Fire Incident:

• - In November 2022, a fire in the unit above caused water damage to my unit. The insurance deemed my unit "unlivable," and my tenant terminated their lease.
• - Fortunately, my insurance policy covered my lost rent.
• - Recently, my property taxes increased, making my monthly payment to the bank $2,200. My insurance currently covers this until the unit is rebuilt, with the rebuild expected by November 2024.

The Big Question: Once the rebuild is complete, the insurance payments will stop, and I'll need to find a renter. However, the rent won't come close to covering $2,200/month, and HOA dues are expected to increase when they renew their insurance policy. To break even after commissions and closing costs, I'd need to sell for at least $275k.

What would you do if you were in my situation?

I have a good job and substantial investments but want to avoid liquidating assets (as I believe my investments have a lot of appreciation in the coming years), or paying the mortgage out of pocket every month. I also don't want to be cash-strapped from using my W2 income to cover these costs. I'm so sick of dumping money into this place that has underperformed so much.

I'd consider a short sale, but my credit would take a hit for over seven years, and I'm likely in too good a financial state to qualify for one. Part of me feels like just letting the bank take it back and then paying cash for things for the next decade.

Thanks for your feedback.

[Minna Reid]

A foreclosure will take much longer to complete and affect you much longer than a short sale, so "letting the bank take it" is probably your worst option. Furthermore, depending on which state the property is in, if its a deficiency state the lender can foreclose and pursue you for their losses after. 

Unless you want to pay the difference out of pocket, you should probably attempt a short sale. Your credit will take a hit but most of my clients recover very quickly if they don't default on other debts. You wont get a new mortgage for likely at least 2-3 years, but that's all better than a foreclosure.

Is this an FHA loan? If so, you don't even need financial documentation to qualify for a short sale now as they have the Covid 19 short sale in place through 4/2025. There has literally never been an easier time to short sell.