Alligator Wranglers – Solutions for those Cash-Negative Investment Properties 

Got Alligators?

 With the change in economy some investors may find their investment properties to be hard on the wallet.   The economy has resulted in reduced rental incomes and rents may not  cover all the expense associated with the property.  Compounded with  pay cuts or job losses those alligators need to be fed to sustain themselves, and can quickly eat away the wallet, and leading down a perilous financial road.

Don’t Feed the Alligators!

What is the best solution to your cash-negative problem? 

Potential Wrangling Solutions:

• Refinance the property – This may result in a better interest rate than your existing loan, that is lower monthly payments.  This is appropriate if you still have equity in your house, and still have a good credit rating.  You can re-finance through a traditional banking institute or approach private investors to refinance the property.  One particular source of refinance that few think of is to approach an investor that has a self-direct IRA.  He/she can use his/her existing retirement fund to invest in mortgages.  This may or may not result in a better interest rate, but many investors that pulled their money out of the stock market and now have it in cash would be please to get a 6% rate of return.  Where can you find this investor?  There are several reputable retirement companies, such as Entrust, that hold regular networking meetings for people with self-directed IRAs.  Research your local market for these companies and you will find investors with money.

• Payoff the second mortgage – This obviously would result in better cash flow for the investment.  Consider approaching a family member or a trusted investor to pay off part of the debt (such as a second mortgage) in exchange for a share in the future profit.  This will give you debt relief and allow you to keep the property.

• Loan modification – This may be a good solution for those wanting to keep the investment.  Loan modifications are increasingly becoming possible for investment properties.  Until recently loan modifications were strictly for primary residence.  A loan modification can reduce the interest rate of the loan, and may spread out payments for a longer period of time.  A 40 year mortgage is increasingly becoming popular due to lower monthly payments.  However if you are upside down on your mortgage, you will remain so.  Each lender has strict requirements that the homeowner must meet before a loan modification is considered.

• Short Sale – A short sale allows you to get out from under your debt through the sale of your house.  If the house has high negative equity (upside down), large negative cash flow, and you have a hardship, this may be your best solutions to the alligator. A short sale minimize your credit damage compared to a foreclosure, it can also eliminate the possibility of a deficiency judgment.  Ultimately a short sale will allow you to move on and start over.

• Deed in-in lieu of foreclosure: You deed the house back to the bank.  It is
  possible if there is only one loan on the house, but you still get a foreclosure on your record.  This is not recommended unless there is no other alternative.

• Chapter 13 Bankruptcy: This re-structures your debt and creates a new repayment plan.  The consequence of this is a bankruptcy on your credit report, which will remain there for up to 10 years.  This does not forgive the debt; it just reorganizes the debt to make it more affordable to you.

Alligators eat your profits