Real estate investor loans are mortgages for non-owner occupied properties. Although houses can be initially purchased for investment purposes, many evolve into rental properties when homeowners buy a new owner occupied home.
That's the case with Helpless In Kentucky who bought one home without selling the first. Within a short period of time, she knew in spite of attractive mortgage rates, her chances of selling the rental were slipping away due to a weak real estate market.
Along with that, the monthly house payments did not cover the rent. A decline in average mortgage rates helped but falling values in the neighborhood made refinancing her rental difficult. Under such circumstances, she couldn't find any lenders agreeable to refinancing a rental property upside down in negative equity.
With this in mind, here are three options for investors sandwiched between negative cash flow and plummeting real estate values.
A new mortgage to lower the monthly house payments will improve cash flow, the difference between the cost of operating the investment property and the rental income. But anticipate bringing cash to the closing table due to declining appraised values.
Reduce the price enough to entice a buyer and gain the upper edge with competing properties. Expect cash to be required to pay off the mortgage.
The important factor to take into account here is taxes. Consult a tax professional about advantages of negative cash flow and the possibility of a positive affect on your tax liability. You may find the fact that rents do not cover the monthly house payments to be a benefit.
To summarize, all three options include cash. Options one and two require lump sums at the close of a real estate transaction. Option three depends on smaller amounts of cash in comparison but requires it on an ongoing basis.
Without a doubt, there is no magic bullet for negative equity. Believe me I wish I had one right now because for investors caught in a weak real estate market, there are few ideal choices. But when decisions must be made, it is a matter of picking the best available option.
Are you familiar with investment properties? What alternatives did you find for refinancing rental properties weak in equity? Tell other Readers what has worked for you.
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