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Investment property mortgage question

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  • Investment property mortgage question

    I am loaded in credit card debt- over 65k and am thinking of filing chapter 7 due to major decline in income
    I have a primary residence and an investment property- both are not upside down but have little if any equity. I wish to keep both properties if possible and I have always been current on all payments.

    My question is on the rental I have a 1 year lease and the rent payment exactly covers my mortgage. If I file chapter 7, can I keep this house and continue to use the rent payments to cover the mortgage? I've been told by someone if I file that they will notify the tenants and they will pay the court directly and the payments will go toward paying the debtors (I can't direct it to paying the mortgage). Of course this will lead to the mortgage not being paid and most likely resulting in a foreclosure.

    Any ideas or advice? A chapter 13 is another idea but not sure if I'll have enough income to work out a plan...

  • #2
    Originally posted by NWRider View Post

    My question is on the rental I have a 1 year lease and the rent payment exactly covers my mortgage.
    Then you're losing money.......

    Get out of the property.
    All information contained in this post is for informational and amusement purposes only.
    Bankruptcy is a process, not an event.......


    • #3
      well I plan on moving back there eventually- I put a lot of money and time (8 years) remodeling it and the value will come back. If it is breaking even, I don't see it as losing money. I would like to keep it but am hoping I will still be able to collect those rent payments toward paying the mortgage


      • #4
        Originally posted by NWRider View Post
        If it is breaking even, I don't see it as losing money.
        Upgrade Reserves
        Tenant Turnover

        If you don't have at least a 30% cushion between the rent and the mortgage payment, you're losing money. AT LEAST 30%, should be more.

        Been there, done that, got the t-shirt.......
        All information contained in this post is for informational and amusement purposes only.
        Bankruptcy is a process, not an event.......


        • #5
          I agree with Frogger, if you are at break even, you are losing money. You need to approach this from a business perspective, too many people got into this whole rental property deal and never really took the time to understand where the numbers need to be to make it work.

          To get yourself to a 10% return on investment, your rent must exceed the hard costs (mortgage, taxes, HOA, and insurance) by about 35%. That allows you to develop a cash reserve for maintenance, repairs, damages, turnover and upgrades. Or another way to look it, in a 12 month time frame, you should be able to put away at least 3 months worth of rent. Thus, if you are renting a property for $1,000 per month, then you should have net profit (net after monthly costs) of $250 per month. Otherwise, you are losing money and don't even know it.

          If the house is negative equity, then DUMP IT. The real estate market is not going up any time soon, with 10.2% unemployment and over 1.4MM homeowners with a mortgage that are unemployed, we have years of foreclosures still on the horizon and no one to buy houses). Get out now. Between your credit card debt and this rental, you are simply bleeding money, you can either do the smart thing, and get out now, or blow another $19,000 over the next year (that is what your minimum payments would equal over the next 12 months) and then you will probably be back here again wondering why you didn't get out at this point in time.


          • #6
            I'm with HHM and frogger too. I got into the Rental Business. However, on my multi-unit building (a multi-use one at that), I had to get an actual commercial loan. This is where I learned what debt-service was all about. If you're debt ration is not at least 1.20:1 (meaning you're making 20% over the cost of maintaining and paying down encumbrances), then you shouldn't be in that business. I did get rid of the apartment building way before I filed.

            But I did keep my single family rental unit. This one killed me. I was probably at a debt service ratio of 0.8:1 and that was just the death of me. If you're not making enough to cover all repairs, mortgage, taxes, and insurance... you're losing money. To top it off, too many people forget this other phenomenon in the rental market, empty units. Even if it's empty 2 months out of every 24 months, that affects the debt-service ratio.

            I'm now out of the rental business. It never "made" me money. It was all speculative that it would pay for itself in 25-30 years, and I could retire with $8M in property at that time. (I did also co-owned a 100-room hotel that we were converting to apartments, but I gave up on that dream too.)
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog

            I am not an attorney. Any advice provided is not legal advice.


            • #7
              Investment property mortgage question

              There are now thousands of new landlords who have taken the step of getting a mortgage on an investment property. Here my m question is "what exactly does that mean and what do people need to know to get a mortgage on an investment property?

              Any real estate agents out there who can explain me for a better understanding of the subject. Thanks


              • #8
                NWrider - at least in CA and in our case, if the properties are not of value to the Trustee you can ride those through and keep the rent. We have a couple of properties that are underwater but have a postitive monthly cash flow which is one of the reasons why we kept them. I was told that if you are giving up the property, not making payments and collecting rent, then that rent has to be turned over to the Trustee. You declare your intentions with the loan when you file.

                one thing to consider - if you are filing consumer BK 7 and you are concerned about your DMI you could include the house costs to bring down a positive monthly income. If after the process is completed (closed case) and the property has some unexpected costs you did not anticipate and that you cannot afford then you could let it go into forclosure without penalty. talk to your attorney and he should be able to give you sound direction.


                • #9
                  Justbroke, I think we had the same idea about retiring in 20-30 years with some money to draw from but we never achieved the level you did in real-estate. unfortunantly Goldman, AIG, and a few banks had their own plan...


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