Sell or Rent condo out?

Question

OK, here's my dilema. Condo unit 3 doors down just foreclosed, new Condo units behind us are selling for 10 grand less than we owe. My wife and I want to get out, but not sure that we will get what we owe if we sell. We also don't want the headache of being landlords, but decided if renting is the only option, we would only rent to family. What are your thoughts on renting (especially to family) or selling for below what is owed. If we rent we would be first time landlords. We have also thought about just going into foreclosure ourselves to get out. It's not that we can't afford it, because we can, we just want out of the neighborhood.

Answer 1

I wouldn't let the property go into foreclosure.  That might have consequences down the road you just don't want to suffer.  I would try renting it.  Ideally, you would want your rental payment to be equal or higher than your mortgage payment but make sure what you are charging in rent is fair for the area.  This way, someone else will help you pay the balance down on that mortgage and over time, you may be in a better position to sell it down the road.  If you do not want to deal with renters, then you can always hire a property management company to handle that for you but remember, they don't provide that service for free.  Personally, I do not rent to family.  They are always the worst in my experience.  Stay away from it if you can.  Selling could be an option but you may have to come up with money out of your pocket in order to close escrow or you might want to ask your lender about a short sale but that will also adversely effect your credit.  There are companies out there that can help you but make sure they are reputable.  Since it sounds like you are not in a financial hardship, you probably wouldn't get anywhere on a short sale anyways.

Another thought that comes to mind is a lease-to-own scenario or using seller carried financing like a wrap-around mortgage.  In both scenarios you can justify charging a little higher payment because they are essentially buying the property from you.  In a lease-to-own, you can have your tenant pay for taxes, insurance, and general upkeep within the payment or within the verbiage of the lease.  A certain percentage of on-time lease payments should be used as a credit towards the purchase of the property down the road.  This way they can help you pay that mortgage down on the condo and help with your other expenses on the property.  Another similar scenario is a wrap-around mortgage.  This is when you become the bank.  You would find a person wanting to buy your condo but might not qualify for a traditional loan.  You would come to an agreement on sale price (which should be at least what you owe on the property) and create a note with payments equal to or above your mortgage payment.  You would take this note and record it as a 2nd mortgage on the property and then put your buyer on the title to the home (state law permitting).  Every month, your buyer would pay you or your attorney the agreed mortgage payment.  You would turn around and pay the payment on the first mortgage and pocket the difference (if there is any).  You would not need to worry about taxes, insurance, or upkeep because your buyer would be the property owner now.  A few years down the road your buyer can refi the property to pay-off the mortgage he owes you minus whatever is owed on the first mortgage on the property.  If the buyer doesn't pay you then you can foreclose on the property and take it back.  

Since it sounds like you might be upside down on your condo, the above methods may work since they do not require any type of traditional financing but keep in mind that the price on your home will be higher than the ones a few doors down.  Also, the type of people you will be working with are usually those that do not qualify for a traditional loan so you have to be extra careful.  Thier credit probably won't be very good so I usually require a small downpayment or deposit, I check public records to see if there are any evictions or judgements against them, and I check job history and references very heavily.  I once made the mistake of leasing a property to a person that seemed like a good candidate but I didn't check them out.  Come to find out they have been evicted from thier last 3 properties and haven't paid a dime of rent to anyone for 2 years.  They knew how to milk the system and kept moving from place to place every 6 months and it took me 9 months to get them out.  

There are pro's and con's to these methods and laws vary from state to state so talking to a real estate attorney would be a good idea.  However, these methods are worth looking into.  I have used these methods to sell property and have been successful but have run into some headaches also.  If you are a landlord or seller of property it comes with the territory.  Having a plan will help ease some concerns though.

Good luck.

Answer 2

Foreclosure isn’t a choice. It’s a consequence of being financially unable to make your mortgage payment. Allowing it to happen would destroy your credit.

As for renting to family or anyone else, keep your emotions out of the picture. You should get an attorney to draw up a lease spelling out the term of the rental, the amount to be paid in rent, deposits to be paid, responsibility for damage and maintenance, and consequences to violating the lease. You must not let them pay rent late or violate your lease. Treat them as you would a total stranger in this situation.

My personal preference would be to hire a property management company who would take care of rent collection, maintenance, tenant screening (should the renting to family not work out), and provide a lease.