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View Diary: Mitt Romney is about to have his way with me. And my husband (20 comments)

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  •  You unfortunately are a "distressed seller" (5+ / 0-)

    A long time ago, I took a seminar in how to make money as a real estate investor.

    The situation you describe -  moved with one house unsold, and another one bought, is one of the situations that "real estate investors" troll for.

    Others include estate sales (someone died, the survivors don't want to deal with owning the property) and potential forclosures on homes that have good equity.

    Essentially there will be a lot of sharks in the water trying to lowball you, and it will make economic sense for you to sell them the house cheap in order to get out from under that second mortgage.

    The solution you've chosen is along those same lines, except that the investors leave you with the risk of owning the house, while they manage it.  They believe that they can get enough rent to make back the expenses of keeping the house up, and still make enough to make it worth their time.  They also clearly believe that in 3 years the market will be more sane, and the price they're offering will be low enough for them to either flip it, or continue renting for a profit.

    If these people are basically honest, this is probably a win-win, although weighted in their favor because you are in a bind.  In real estate, anyone who NEEDS to sell is going to lose a chunk of money.  That's just how it is.  

    The only thing I see that is a potential red flag is them paying only half the lease if they can't find tenants.  That penalizes you for their incompetence, you're assuming half the risk if they overprice the rental or don't advertise or make other similar errors.

    Otherwise, you are essentially trading a portion of the potential equity of the house for getting out of a cash flow crunch, and also for risk mitigation if the housing market completely tanks instead of getting better.

    If you believe these people can attract tenants reliably and that they'll be good for buying the house even if the market tanks further, then this is probably a decent deal for you.   They could, after all, wait until the negative cash flow drains your reserves and you're forced to abandon the house to the bank, then buy it for a song on the auction hall.   That strategy has different risks, though, and these people seem to be trying to play to their strengths (if they have other successful rental properties, they probably think they can make good money during that 3 year period).

    Remember, in real estate, it doesn't matter what you bought a property for, or how much you spent on it.  It only matters what someone is willing to pay, and how long you can wait for a buyer willing to pay your price.

    In this market, the buyer has most of the advantages, including very cheap credit terms.  

    If you want to feel better about "betting against the housing market going up", work out how much it would cost you to leave the house on the market another 3 years.   Compare that to the equity you'll "lose" by selling at a price between your preferred and your lowball price.

    I suspect the numbers won't look as bad when you think of it this way.   As there is no guarantee the housing market will do better, even under Obama, you have to accept that there are risks for the other party too, even if it seems like you're giving away too much now.

    You have already paid a steep price for owning a house that you neither live in, no rent.  Homeownership is really expensive if you aren't either saving rent or getting rent as part of the deal. You need to get out from under that before you extinguish the retirement savings and/or emergency reserve you have left.

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