What do I do with this house??

Question

I live in Nevada and bought a little house in Mississippi in 2008 for $65K, as an investment.  It has 2 BR/2Bth and I thought it would be a good investment because the price was right, it’s about a mile from the beach, and it has a huge back yard in case I later wanted to expand the house.  I bought it cash using equity funds from my home.  It’s been always hard to rent the house.  Now the house is worth $25K and it has been vacant for 8 months.  The house was renting for $800 when I bought it and now it doesn’t rent for $500.

The worst part is that the fire insurance is $900, extremely high for a house worth $25K.  This is because to rebuild the house will cost $130K.  Because this is Katrina area, I also need Wind Insurance, Fema, etc. which I can no longer afford, living off a pension.  Taxes are high too:  $700. I have attempted to get taxes reduced to no avail.  I didn’t know about the high taxes and insurance at the time I bought it.  I know, my mistake.  I’ve never made a penny off this house.  Everything goes to pay the property manager and all expenses.

What do I do with this house?  It hurts losing so much money.  What would be the best thing to do?  I even thought about donating the house , but I don’t know how that works and if it’s worth it.

The biggest mistake of my life.  Suggestions, please!

Delma Gordon · Answer

Here’s my update.

Again, thanks to all of you who took time to respond to my question.  All offered excellent suggestions, some even funny.

Joel, you touched an important point.  Yes, something drastic happened in the area.  
  
My property manager told me that almost all the houses on that street are now rentals, some Section 8, lots of families with kids and, per her words, “it’s crowded.”

After thinking and thinking about it, considering all my options, I decided to sell the house at a loss.  What triggered my decision was that now I have a repair that costs close to $1000.  I really want to disconnect completely from this nightmare.  Also, everything is “different” in MS and I won’t even go there. 
 
It has not been an easy decision.  It’s so hard to accept our mistakes and failures.  I really appreciate your help.

Steve Babiak · Answer

Move into the house in Mississippi and rent out the one in Vegas.

Jon Klaus · Answer

Since now it's worth only $25k, and probably half the value is in the land, why don't you cancel the property policies and self insure?  Get a liability only policy for a couple hundred.

Tod R. · Answer

Hi Delma Gordon, welcome to BP.  You'll get good, honest advice here from people that have great experience and wisdom.

I would talk to a few real estate agents to get their thoughts about values and market rents.  They would need to see the condition of the home to be able to make an accurate assessment.  I agree with Michael  R. about a change in management too.

Good luck with this and keep us updated.

Michael R. · Answer

Sorry to hear about your situation. You can cut your loses not and sell at a loss or let it continue to bleed you of money each month. For insurance try getting a cash value policy as it will be most likely cheaper than your replacement cost policy. I just did this and cut my insurance bills in half. By the way here in NY where my properties are I pay about 140$ a year to insure them. 
I would look for a new manger if it has been empty that long. Have they given you any feedback as to why it wont rent? There must be something your not seeing, they are not advertising, house is in disrepair, or maybe rent is to high?

If it was me I would get a new manager who is aggressive (or seems to be) in getting it rented. If things still dont get better I would cut my losses and dump it. At least then I would not have to worry about what the next major repair will be and what it will cost me. It was just an expensive learning lesson but everyone on here most likely had one before. good luck

Joel Owens · Answer

"The house was renting for $800 when I bought it and now it doesn't rent for $500."

I can see values dropping a bunch but for the cash flow rent rates to drop by 40% something drastic had to happen in the area.

Either your property was in nice shape and now it is trashed and instead of pouring more money in you have reduced rents over time OR the area has been hit with massive foreclosures and new purchasers  reduced rental rates to rent up fast.

I like the idea of the local investor to take it on.

I never buy 2/2's unless it's apartment buildings.For resale 2/2's are really hard and do not hold value as well as 3/2's.

Some areas it might make sense but not for me.

Ron Robin · Answer

"Ok, Steve, now you've made me laugh. Good suggestion, and it has crossed my mind. But the truth is I could not live in MS. I need to be where the action is. I moved 2 yrs ago to LV and I love it here"

come august and sept.  I guess the Mississippi will be where the action is.  Hurricanes

Mike H. · Answer

What about doing an owner finance deal with another investor?
Nobody rents houses better than an investor. And if its only worth 25k, they might be willing to take that on if they're just trying to get started.

Considering you paid cash, you can be pretty creative on the terms since there is no due on sale clause to worry about.

And then they can deal with getting it rented and paying the insurance. The risk, of course, is they don't pay and you have to foreclose.

But you'd be surprised how much better an investor does at keeping a property rented compared to a property manager. And he's liable to keep paying you if he's making money.

Mike Jakobczak · Answer

Delma Gordon Maybe a lease option or owner finance the property to a local family.  You would get a higher price on the rent for the lease option.

Just a suggestion

Delma Gordon · Answer

Ok, Steve, now you've made me laugh.  Good suggestion, and it has crossed my mind.  But the truth is I could not live in MS.  I need to be where the action is.  I moved 2 yrs ago to LV and I love it here.

What do I do with this house??

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