If your house is not worth what you owe, or the rent you are getting for it is not covering the expenses here are some options you might want to consider.
1. Stay put, continue living in the place until, if you’re an optimist, the market turns around.
2. Take on a roommate or two, lowering your cost of living. Did you kow that the landlord and tenant act doesn’t apply to home owners renting out a portion of their primary residence? This extra income can offset a shortfall and put you back into the black. Roommates come in all shapes and sizes so know what you’re ideal profile is and don’t settle. Establish the rules on the onset including what are the common/shared areas. I don’t recommend doing this if you have to share your bathroom with a roommate, but that is my preference.
3. Rent out the place entirely. You can then use a portion of your rental income to help you qualify for your next home. Or, you can move into a more affordable rental and rent out your larger space to someone that needs all that room. This too can cut down your monthly net expenses.
4. Rent to Own – not for the faint of heart and may be better left to the professionals but worth mentioning. This tool is good providing it is directed at the correct tenant/future owner. Contact me if you’d like more information on how this works or professionals that specialize in this.
5. “We Buy Houses”, you’ve seen the signs, but did you know that these people buy homes at below market value sometimes as little as 60 cents on the dollar? Why would anyone want to sell their house for less than market value? This is an option for those that have left it too long and the bailiff is arriving the next morning to kick them out of their house. The “We Buy Houses” guy will buy the house and settle the debt if there is equity in the house letting the home owner walk away with his credit somewhat in tact and potentially more in equity than would have been the case if the house was foreclosed on. Some of these investor types will also help the home owner arrange a rent to own in a more affordable home. But, again, this tool should only be applied in those 11th hour scenarios.
6. Increase your amortization – if your amortization was orginally say 25 yrs and you’ve managed to pay it down due to the low interest rates of late to say 18 yrs. You may be able to go to your lender and ask them to increase your amortization to the maximum number of years without having to qualify. Say that number is 22 yrs, the monthly payments go down and your rental home may now cash flow or lower your cost of living. I’ve done this myself on my rental properties and it worked very well.
I hope that helps. If you have any questions on the details on the above or have other suggestions or simply want to leave a comment I encourage you to do so. Perhaps someone can use this information and turn their situation around from red to black.
Realty Executives Polaris