I bought a condo in killarney about 2 years ago for 258K. i started renting it out last year. its currently rented at what i think is the highest i can get, and its still negative cash flow $400 a month which it has always been.
currently there are 2 selling for 235 and 255K. both are the same, if not nicer than mine with some upgrades. my mortgage balance is 241K
I put about 15K down and then another 10K since to keep it up.
I have someone willing to assume it (which I here can be dangerous for me) at 250K (which would give me about 9K profit)....so a 16K loss or so.
I have heard assuming can be quite dangerous as theres not much protection for me if they dont qualify.
I dont know if I should just try it and get rid of it....or keep feeding it $400 a month and hope for it to be worth more soon.
What does everyone think I should do?
I need to make a quick decision..
IF you think assume, then is there a better way to not be in such a vulnerable position.
It will be years before you will see a rental increase of $400 or more to offset your negative cash flow. I am very bearish on any condos in the beltline area for the foreseable future. You want to be in suited properties or townhouses so dump this dog and consider adjusting your portfolio. In two years your condo will be worth about the same and you will have lost another $9600.
Have a look in your mortgage contract for any clauses regarding assumptions. They will tell you your exposure in the event the assignee defaults.
Provided that there isn`t anything funky in the contract they will more than likely have to qualify through your lender to take on the deal. This might cost you a few hundred bucks.
I would take a $5k deposit cheque from them, give them a week to work out the assumption with your lender and if they qualify take the remaining $4,000 + change at closing.
QUOTE (Millions @ Jun 1 2009, 09:09 AM) HEy everyone,
I bought a condo in killarney about 2 years ago for 258K. i started renting it out last year. its currently rented at what i think is the highest i can get, and its still negative cash flow $400 a month which it has always been.
currently there are 2 selling for 235 and 255K. both are the same, if not nicer than mine with some upgrades. my mortgage balance is 241K
I put about 15K down and then another 10K since to keep it up.
I have someone willing to assume it (which I here can be dangerous for me) at 250K (which would give me about 9K profit)....so a 16K loss or so.
I have heard assuming can be quite dangerous as theres not much protection for me if they dont qualify.
I dont know if I should just try it and get rid of it....or keep feeding it $400 a month and hope for it to be worth more soon.
What does everyone think I should do?
I need to make a quick decision..
IF you think assume, then is there a better way to not be in such a vulnerable position.
It will be quite sometime before you see a breakeven point on this investment. Our market has stabalized but without seeing the unit I would say it would be at least 12-18 months before values appreciate back up to these levels, which means you have to keep absorbing the negative cashflow. This will always be a negative cashflow deal. Rents have softened and even in the hottest of rental markets you will not see a $400 increase. What is your mortgage amortization?? If it 25 years or 30 years, perhaps have the lender re-amortize the mortgage over 35 years. This will lower your payment. But will still most likely still be negative cashflow.
With respect to assuming your mortgage to another investor. In most instances the investor can still have the assumed be approved. Very rare to see an outright assumption. Also, any liability may have to be yours in the event of default. This is something you will definitely want to ask your lender.
QUOTE (RedlineBrett @ Jun 1 2009, 11:40 AM) I am very bearish on any condos in the beltline area for the foreseable future.
Do you mind if I ask you why you`re very bearish on condos in the beltline, and if you feel that way about Calgary condos in general or the beltline specifically?
QUOTE (bizaro86 @ Jun 1 2009, 01:40 PM) Do you mind if I ask you why you`re very bearish on condos in the beltline, and if you feel that way about Calgary condos in general or the beltline specifically?
Thanks,
Michael
Too much supply from new construction and condo conversions. Many developers canceled their projects but others have just put them on hold. Many of the new buildings you see are 50%+ tenant occupied. The speculators that got left holding the bag are going to be giving great deals to tenants for the better part of a decade.
Calgary is overbuilt with apartment style condos and high end 2000+ ft2 pads on the edge of town. It is under supplied in townhouses and quality single family homes in the mid 300`s.
QUOTE (RedlineBrett @ Jun 1 2009, 11:40 AM) It will be years before you will see a rental increase of $400 or more to offset your negative cash flow. I am very bearish on any condos in the beltline area for the foreseable future. You want to be in suited properties or townhouses so dump this dog and consider adjusting your portfolio. In two years your condo will be worth about the same and you will have lost another $9600.
Have a look in your mortgage contract for any clauses regarding assumptions. They will tell you your exposure in the event the assignee defaults.
Provided that there isn`t anything funky in the contract they will more than likely have to qualify through your lender to take on the deal. This might cost you a few hundred bucks.
I would take a $5k deposit cheque from them, give them a week to work out the assumption with your lender and if they qualify take the remaining $4,000 + change at closing.
Hey thanks for the response. It definately is a dog so I guess selling it makes sense. I already have a 10K deposit from him but it was suppose to be an assumable without qualify but my lawyer has brought up the issue of being held liable potentially for the entire term of the mortgage if it defaulted. I could put a clause in there that helps me get the condo back if defaulted but id rather see it gone and gone haha.
QUOTE (Millions @ Jun 1 2009, 07:15 PM) Hey thanks for the response. It definately is a dog so I guess selling it makes sense. I already have a 10K deposit from him but it was suppose to be an assumable without qualify but my lawyer has brought up the issue of being held liable potentially for the entire term of the mortgage if it defaulted. I could put a clause in there that helps me get the condo back if defaulted but id rather see it gone and gone haha.
What do you think?
Matt
Well I would want to make sure the guy can qualify for it. Or if it is a non-qual and that is what the buyer needs I would still want to see his account history for the last 3 months in addition to some pay stubs and a letter of employment. This would be worth some $$ on purchase price to me just for peace of mind.
Were I in your position and the buyer was remotely decent I would sell it to him. But that is just me. REINspace can`t make this decision for you... how do YOU feel about it?
Julie Hoffman here. If the person assuming the mortgage will qualify and take over your personal guarantee, there is less risk. We assumed a mortgage a couple of years ago and it was a CMHC mortgage. The seller was nervous and the bank was uneasy as well. So we qualified and signed guarantees.
QUOTE (RedlineBrett @ Jun 2 2009, 09:05 AM) Well I would want to make sure the guy can qualify for it. Or if it is a non-qual and that is what the buyer needs I would still want to see his account history for the last 3 months in addition to some pay stubs and a letter of employment. This would be worth some $$ on purchase price to me just for peace of mind.
Were I in your position and the buyer was remotely decent I would sell it to him. But that is just me. REINspace can`t make this decision for you... how do YOU feel about it?
I think he would be good. His wife works at the scotia bank that holds my mortgage which is why i find it wierd they cant or wont go qualify. But maybe its because he owns a few more and has his own business. They seem very good. I just dont want to be on the line for 35 years. Though I agree, I need to get rid of it ASAP.
QUOTE (JulieHoffman @ Jun 2 2009, 03:00 PM) Hey Matt.
Julie Hoffman here. If the person assuming the mortgage will qualify and take over your personal guarantee, there is less risk. We assumed a mortgage a couple of years ago and it was a CMHC mortgage. The seller was nervous and the bank was uneasy as well. So we qualified and signed guarantees.
Best of luck.
Yes, but supposedly he said qualifying is out. Maybe I should ask him why. I know he said before because he owns a few properties. and has his own business. Can they still sign the gaurentee if they dont qualify?
I have heard - I have never done this - from other REIN members, and it depends what is in the mortgage documents and what you will write up as part of the agreement, but having said that, I have heard that if the new buyers make payments for a period of 1 year, you can effectively be discharged forever from the legal obligations of that mortgage. What it requires is you to write a letter to the bank.
I`m sure I heard something to that effect from Barry McGuire at a meeting when he went through "Tales From The Trenches".
And/Or, if you are that worried about it, you could take a lesson from my Foreclosures course that you could have an option to purchase the property back from them (so it cash flows) at a decent, discounted, favorable price (requires skilled negotiation) should they default on a payment.
But -$400 is significant. Get it out of your portfolio asap!
