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When is it best to sell or surrender real estate?

Posted on Jun 5, 2013 in Alternatives to Bankruptcy, Real Estate

A gentleman came to see us yesterday.  He had some questions about his finances and he wanted to tell us about a property he held out of state.  He didn’t know if he should consider bankruptcy, a foreclosure on that property, or some other solution to his cash flow issues.

As a manager of this property he took great pride in it.  Most people have pride in their homes and properties, especially if they invest time and money into repairs and construction.  That is a wonderful and normal human feeling.

In this case, I suggested that the man sell the property, even though it was about to produce enough rents to cover the mortgage, taxes, and overhead.  Why?

We took a look at his whole financial picture and saw some clues that he should look to sell now instead of exploring a bankruptcy or a foreclosure.
1.  His family didn’t wish to take over the property from him if he would sell it or deed it to them.
2.  He spent a great deal of time with the management of the property.  This is a fine hobby but took away time he could have been spending with his family here.
3.  The neighborhood isn’t fantastic, and he didn’t feel like he would be comfortable living in the property.
4.  Rents were going to increase, meaning it would be profitable.
5.  The real estate market is slowly getting better, leading to better sales.

The point was that he should sell high and try to recover what he owes on the property.  If a short sale was required, he could explore those options as well.  Changes to his income and expenses eliminated the need for a bankruptcy filing, and a foreclosure would lead to the same result (losing the property) but with a long stain on his credit and increased legal fees, as well as a potential claim by his second lender.

He came to see that the most flattering feeling he could get from this property would be an offer to purchase.  After all, nobody really wants to buy lousy, poorly maintained properties.  It would be a compliment to his hard work.

When it is best to sell or give up real estate?  Here are some general thoughts
1.  When the real estate requires so much work and money that it would become a money pit.
2.  You don’t want to hang on to the property forever, and the market is as high as it will be in the foreseeable future.
3.  It doesn’t generate any or enough rental income to cover the mortgage and upkeep.
4.  It is dangerous to live in
5.  It is no longer affordable based on your current income due to a decrease in income or increase in expenses

If you can’t or don’t want to retain real estate – either your home or other property – call or e-mail us to set up an appointment.  We can review how you can better your finances through a sale, a short sale, deed-in-lieu of foreclosure, a regular foreclosure, or a bankruptcy.


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