How to lose $53,900 on a rental town home (Part IV): Trapped:

The previous post outlined the vagaries and headaches of land-lording.  Today I’ll discuss how to get trapped in a property.

Given the things going wrong thus far, even a 6 year-old might have asked why I didn’t just sell the money pit and move on.  Remember the financing piece?  I put down the minimum amount I could to drive the leverage component of my investment.  That decision was coming back to haunt me.  In spades.

Money Pit

Coupled with the steep decline in property value, I was in trouble.  Selling it meant bringing a ton of money to the table to get out because the property was under water financially.  Over 20,000 leagues.  I didn’t have and couldn’t get that kind of coin.  Refinancing wasn’t available because the loan to value (LTV) was under water due to the small down payment.  The coffee shop, car trunk lenders had vanished.  Go figure.  Alternatively, defaulting on the loan, letting the property revert to the bank, and having that mark onward was a possibility.  At this point, a degree of rational thought kicked in. 

I could lose a pot full of money at once by selling the property or defaulting.  Alternatively, I could continue muddling along, suffering much smaller losses over an extended period of time hoping the value would recover sufficiently that I might be able to climb out of the abyss.  Default wasn’t a serious consideration.  Given what happened in 2008, I could have joined the party but I’m not wired that way so defaulting was out.  Consequently, losses mounted as I hunkered down to wait it out.

Years passed.  Renters came and went.  Tramping an hour round trip to take care of repairs and suffer no-shows became tiresome.  Then I decided to hire a property management firm.  They could handle the nitty-gritty and the headaches.  Writing them a check was all that was required for operational relief.  Paying them was better than paying AND having the managerial joy.  A company called Blue (name changed to not offend the guilty) was hired to take care of things.  The fun continued.

I’ve covered the financial analysis, financing, land lording, and financial entrapment.  In the following post, I’ll discuss the property management fiasco and costs.