Underwater rental property. Keep it or short sell it?

[Chad Rupp]

I would love your advice. Should I keep this rental property or should I short sell it?

I have a condo in Algonquin Illinois (3 bed, 2 bath, 1890 sq/ft) that I had bought for $265k in 2006. 
I have about 40k in equity in the property

The current comps for this property are around 185k - 195k.
Ten years later the property is still 70k - 80k underwater.
This property used to be be my main residence, but I have moved and I am now renting it.

Total expenses = $1835.84

Rent = $1700.00

I'm losing $135.84/month

With this property still underwater 70k - 80k and I am paying an extra $135.84/month. Would you keep this place or short sell it? Its been ten years since the crash and the location is still creeping back. Im not sure how to run numbers to see when, and IF, I will ever break even on this property. 

Thanks for your advice!!

[Cara Lonsdale]

Short sales are tricky, people.  It's not an easy answer for an investor to make.  Be sure before you decide to move forward on a short sale.  This will affect your ability to obtain conventional financing for 3-5 years.  You will be limited to hard money or commercial loans to make your future purchases.

In addition, the lender has the ability to go after you for the difference.  Not alot of people realize this, but if you sell for $40K less than the property is worth, be prepared to be sent a bill for the $40K after closing AND be prepared to be sent a tax form to treat the $40K as INCOME on your taxes for the year you sold it (which TOTALLY RUINS YOUR DAY!).

There is usually some protections in place for owner occupieds on a deficiency judgment for forgiveness of the balance, but as far as I know, there is no flexibility for investors who short sale to eliminate that debt after closing.....except bankruptcy....which is WORSE because that stays on your credit for 10 years (even though you can purchase again in as little as 2 years).

Foreclosure would be another way to eliminate the deficiency, but even then, depending on your state, and how they secured the debt, that isn't always a given either.

No great options here.  Best to consult an accountant and/or attorney for your best course of options that work with YOUR future strategy in mind.