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Renting House IIB, Buying Second Home - Thoughts, Advice?

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  • Renting House IIB, Buying Second Home - Thoughts, Advice?

    This is a little lengthy so thanks to those of you that read it all and can contribute.

    Before filing Chapter 7 I had a rental property that was severely underwater. After getting laid off in a merger I let it go in foreclosure. We also had our primary residence that we lived in and did not reaffirm.

    I have subsequently taken a job out of state and have relocated the family. We have rented out the house and although it is underwater by $30-40K it is cash flow positive by about $600 a month.

    We're about 18 months away from the 3yr mark on the rental property foreclosure. We recently moved into a new rental and signed a 2yr lease. By the time this lease is up we will be more than 2yrs post discharge and more than 3 yrs post foreclosure.

    I may want to look into purchasing a new home then if we decide to stay in this location.

    Here is the question. What are the chances that I'll be able to obtain a mortgage for a new primary residence if I still own the other house (with a loan IIB)? I don't want to sell it since it brings in about $6K a year in income and is a good tax deduction. (It's a paper loss due to depreciation and expenses.) I bought that property while still owning the rental property I previously mentioned. Since then we have more than 15 years experience as landlords and by the time I am ready to buy this property it will have a 2.5 year track record of positive rental history.

    Based on what I've been reading here and elsewhere, it looks like getting anything other than a hard money loan may be difficult in these circumstances. Anybody else have any experience or advice with this kind of situation?

    Thanks!
    Case Closed > 2/08/2010

  • #2
    Originally posted by BobMango View Post
    This is a little lengthy so thanks to those of you that read it all and can contribute.

    Before filing Chapter 7 I had a rental property that was severely underwater. After getting laid off in a merger I let it go in foreclosure. We also had our primary residence that we lived in and did not reaffirm.

    I have subsequently taken a job out of state and have relocated the family. We have rented out the house and although it is underwater by $30-40K it is cash flow positive by about $600 a month.

    We're about 18 months away from the 3yr mark on the rental property foreclosure. We recently moved into a new rental and signed a 2yr lease. By the time this lease is up we will be more than 2yrs post discharge and more than 3 yrs post foreclosure.

    I may want to look into purchasing a new home then if we decide to stay in this location.

    Here is the question. What are the chances that I'll be able to obtain a mortgage for a new primary residence if I still own the other house (with a loan IIB)? I don't want to sell it since it brings in about $6K a year in income and is a good tax deduction. (It's a paper loss due to depreciation and expenses.) I bought that property while still owning the rental property I previously mentioned. Since then we have more than 15 years experience as landlords and by the time I am ready to buy this property it will have a 2.5 year track record of positive rental history.

    Based on what I've been reading here and elsewhere, it looks like getting anything other than a hard money loan may be difficult in these circumstances. Anybody else have any experience or advice with this kind of situation?

    Thanks!
    lets see if i got this right
    u included your old house in your bk, u are not responsibly for paying the mortgage on it anymore ,u dont own that house (the bank does) yet u rent it collecting $600 every month
    talk about milking the system or better yet scamming the system, damn
    Filed chapter 7 on 9/17 341 on 10/20
    Chapter 7 Trustee's Report of No Distribution on 10/21
    Discharged and Case Closed on 12/21/2010

    Comment


    • #3
      Originally posted by scorpion35 View Post
      lets see if i got this right
      u included your old house in your bk, u are not responsibly for paying the mortgage on it anymore ,u dont own that house (the bank does) yet u rent it collecting $600 every month
      talk about milking the system or better yet scamming the system, damn
      Actually, I don't think that is what is going on, although I can see how you could think that, Bob's post is not 100% clear. I think what he meant is
      At time of BK he had 2 properties, a rental and his primary residence
      -The rental property has gone to foreclosure and is gone
      -Because of the move, he is now renting his former primary residence for $600 per month, which he still owns.

      The question is, can he buy at the 3 year mark while still owning the other property?

      It will be difficult, but not inherently impossible. If the other home is cash flow positive, that is benefit. But I think mainline lenders are going to be looking hard at the rental property, your present cash flow situation and reserves. They will probably look to see that your present source of income (job) minus the rental income, is enough to cover both mortgage payments or that you have enough capital reserves to carry the rental property for a year if you had no tenants, if yes, you should be okay, if not, you will have difficulty.

      Comment


      • #4
        Thanks for the clarification HHM. You are correct. The rental property (property 1) was lost in foreclosure before the bankruptcy. The mortgage on what was our primary residence (property 2, now a rental) is and always has been current so there is no gaming of the system here. The monthly rental income for property 2 covers the mortgage and adds $600 a month to our cash flow. (In retrospect, I probably should have moved out of property 2 and rented it out for the income before I lost property 1.)

        The reason I don't want to get rid of property 2 is two-fold, it is income producing ($600/month + tax benefits) and it is right at break even now in terms of value to mortgage so selling would be a loss.

        When I get ready to think about buying again I'll look for properties that fit the criteria you mentioned. I figure if I can keep the mortgage payments for both properties (property 2 and property 3) to about 35% of my non-rental income we might have a shot.
        Last edited by BobMango; 12-12-2010, 01:29 PM. Reason: clarification
        Case Closed > 2/08/2010

        Comment


        • #5
          Okay, that makes sense. Congrats on having the cash flow on the rental actually be $600 positive (in this climate, that is tough).

          But if property 2 is that cash flow positive, and is at near break even in value, then I think you are in a strong position. Again, I think the banks will want to see capital reserves (cash in bank) and I think your criteria of having both mortgages be less than 35% of your gross, non-rental income, is a great benchmark to work towards.
          Last edited by HHM; 12-12-2010, 03:14 PM.

          Comment


          • #6
            i know due to this economical climate and the limited lending practices the banks have not implemented currently we opted into a rent to buy option where the owner is holding or going to hold the mortgage.

            we are, and were so concerned about the "new" lending criteria that we ended up sitting down with this owner and worked out something that was good for both of us....so now, we will not have to depend on the bank to once again own a house.

            personally, since there have been so any foreclosures and bk's....empty houses sitting all over, and who needs to the buy them...well...i say US??? time to get creative!!
            8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

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