WHICH IS PREFERABLE: LOSE A LOT OF MONEY NOW, OR LOSE IT SLOWLY OVER TIME?

[Anonymous]

My boyfriend and I have a dilemma. (Please don't comment on our relationship in the reply). We live in a lovely home, with a big (50%) but manageable mortgage. We both have second properties. Mine has a small positive cash flow and is a great investment with over $1M in equity. His is a coop in the same city, Atlanta, and he can't even sell it for what he paid 5 years ago. It is a heavy psychological drain for him and I am trying to help ease the pain by making an educated decision about how to go forward. He is right on the edge of upside down in his mortgage.

He paid $795K with a mortgage (adjustable, now about 7.5%) of $703K. We are asking $749K....and it still looks bad. The neighborhood is great as far as I can tell, but not hot at the moment (Centennial Olympic Park). Even if we got an offer at asking, he would owe the bank money after broker commissions. The place costs him about $4000/mo to own, and would maybe rent for $2750, if the board would even allow a rental. There have been 2 recent foreclosures and one firesale by the DEA of the same unit on a higher floor for $680K. I'm thinking the board needs to let us rent, or my BF will lower his price more, thereby negatively affecting other units for sale in the building....and the main realtor for the building happens to be the head of the COOP board (!!??).

So the question is, do we hang on at $4K/month and keep trying to sell (plus staging is costing me $2K/mo....though I am planning to switch that around and lower it to $500 or less) or just lower the price even more (maybe to $703K), lose his initial downpayment of $90K, and pay the broker her $42K out of pocket?

Or do we find a renter at $2700, pay the $1300 difference out of pocket for a year or so, and hope for the market/neighborhood to improve? I thi

nk it will, but the psychological drain of the condo is very heavy for my BF. Whatever should be done, I am probably the one who will take charge, as he is busy launching his new business, and I am the one who loves real estate.

[Anonymous]

Yours isn't a credit question, so you might not get too much response here.

I'm no financial advisor expert, but if it were me (which it isn't) I'd try to rent and ride out the market.

If you sell now, he gets the psychological benefit of getting rid of an ongoing problem.  But if you bail and the market goes up, will he beat himself up later for not waiting?  My only concern is that he is "launching his new business."  If that business doesn't take off, does he have the cash to keep the condo if it goes vacant for a few months or needs expensive repairs?

Others may tell you to cut your losses and dump it now.

This one is a tough call.  What does your gut tell you?

[ShanetheMortgageMan]

Must be a nice place for that price in the ATL.  Have you approached the Coop and ask if they want to buy it from him?  If one option is to drastically reduce the price and have it affect all other units, perhaps the Coop will want to purchase it from you guys in order to avoid affecting everyone's values.  I think they'll at least listen because they'd want to maintain the health of the corporation.  What about if you were to get your real estate licence and sell the home yourself, thereby saving ten's of thousands of dollars in commissions?  I don't know what the process is in Georgia, but here in California you can get your license in about 3 months.

If you sell, the loss would be $90k + $42k = $132k.  So to compare, if you were to rent and loss $1,500/mo... it'd be 7 years and a few months before that amount of loss would happen.  A lot can happen in 7 years, not sure if values could get back up to $795k, but they just might.

[Anonymous]

Since I am a realtor who works with investors - my BEST ADVICE is to see a CFP... you have a couple options available - one of which is to transfer both properties to an LLC (you would maintain appropriate % of investment) and absorb the loss into your gain - again a CFP/tax attorney/CPA can better advise.  Right now you are experiencing 'a paper loss' - it is not a true loss until you sell.

If selling would benefit him best both financially and tax-wise then sell - but get to that tax guy first for advice.

Without having a capitol gain to offset the capitol loss - my gut says do not sell...it will be a permanent loss of net assets.

The nice thing about real estate is that there will always be a demand for housing (sometimes less, sometimes more) - and although things are bleak now - a 'reasonable' market will return (I'm thinking 2010).  We will never see the incredible gains we saw in the last few years (at least I hope so) - because we priced people out of being able to buy and now wonder where all the buyers have gone.

What I will suggest is that if you do decide to sell that you look for an agent who has been in business since before 1999 - thay have dealt with a buyer's market before...

You can try a "this weekend only price" and see what interest can be generated...

You can offer a lease purchase instead of a straight sale (different than rent with option)

Message Edited by Lady_Scarlet on 12-20-2007 04:50 PM