bostonbubble.com

[mpr]

[GenXer]

I think it's a no brainer. In order of preference:
1) 'Obama' sale (you probably don't qualify)
2) Short sale (credit ding, you also may have a hard time convincing the bank)
3) Sell and make a deal with the bank for a loan (may or may not fly, again)
4) Sell and forget (pay down the loss somehow)

But I think you are still missing the big picture. As was mentioned, $40k is nothing. It is peanuts. You have to think about your financial future. Many people have stock losses that are more than that. You also have huge loan obligations. And it sounds like you want to buy something again (and may come under pressure to do that - if you read other threads here - esp. when babies come along).

If you had a good plan put together, you wouldn't be in this mess to begin with. But it matters not what you did in the past, as long as you learned your very expensive lesson. Many people here have a decent gut that tells them not to plunge, but others may need some guildelines or rules of thumb to keep them from making bad decisions.

You need to work with an accountant who can help you with depreciation and other tax issues, some of which you may have overlooked. PM me and I can recommend a good accountant I work with (and I do my taxes with him as well). Otherwise, good luck.

[Guest]

I'd love to find a good accountant, so any suggestions would be greatly appreciated.

[balor123]

Yes I also have a hard time understanding how with a $140k income how a $40k loss is unmanageable, even with all that other debt. You should be able to pay most of this stuff off within 1-2 years. I suspect there are two problems here:

1) He has a kid coming and doesn't want to wait 1-2 years
2) He doesn't like the thought of actually having to write a $40k check

As for the second item, remember that you will have wins and losses in life and no matter how hard you try they won't all be wins. $40k is like a nice car and doubt it will have much impact on your quality of life over the long term. As others have pointed out, I, like many, have losses larger than that in the stock market without taking what would be considered risky investments and I'm actually a few years younger than you, with a 1 year old, less income, and living in a now 2br apartment. Really, it can be done and it's not as bad as you're making it out to be.

I don't know you well but I think I can sympathize and I think you are going to cause yourself a lot more pain with any option that doesn't involve paying that money. I concur that your best bet if not waiting 1-2 years is to take out the loan and pay back the loan. You might even keep or grow the CC debt, though a lot more expensive, just because you can get it and it appears getting out of the apartment is the most important thing to you right now. Still, if it were me, I would stay put.

As for raising kids in apartments, many would actually consider a small living space a plus in the first few months of life as your wife can feed easily. At some point the kid will start moving around and having a small space makes it easy to baby proof and watch the kid. At some point it will become problematic as you want to have different sleeping hours than the kid and the kid is also more aware of the surroundings and that's when you might want to have more space but that won't be for at least 1 year, or the time you need to amass those savings. As for the environment, I think people matter the most in the first few years of life. Sometime around 2-3 years the living space will start to matter and by ~5 they start going to school so your geographical location matters. Your problem is manageable within the timeframe that you've got.

[john p]

In life we have "realized gains" and "realized losses".

When you look at how a huge percentage of people are upside down on their home equity, you have to realize that it only matters to those that ACTUALLY HAVE TO SELL. It's kind of the opposite of those that had BUBBLE EQUITY.

Basically, banks were calling up people and saying "Hey, your net worth is much higher now because your house value went up". There were three ways to actually cash in on this: first, take out a home equity line of credit, second, to use the equity as collateral for other investments, or to sell the property. Basically, when you bought someone else's property, you realized their gains.

Now, everyone has a "time horizon", meaning staying power or time flexibility to ride out the up and down waves. You got caught with a rogue wave so you don't deserve the worst scolding and people won't look down on you, but people will judge you on your ability to navigate through this sitation (your exit strategy) where you can avoid or at least minimize realizing your losses, or you realize your losses in a manner where they balance out with GAINS on the other side of the equation. People will look at your "hardship" and evaluate how much of it was self created. Bottom line here is, if you have a short time horizon and don't have an exit strategy or an emergency fund for staying power, live cheap and don't take on too much risk. You say you were bombarded with advice back in your 20's where people were telling you that the real risk was not getting into the market and missing out on market appreciation. The part of this that is true is that if you have a long term strategy you can ride the wave up and down. Most people I knew that succeeded in what you did would buy a 2-family, live in one and rent out the other, and then move out and rent both. These people had a plan and had seaworthy resources available to participate.

What I'd do is get your place on the market and get the best offer possible. Then, negotiate with your bank. First find out if there is an issue with you renting it in the terms of your mortgage. If you have an offer in hand and you tell the bank that you can accept the offer if they help kick in $20k or so, or otherwise you'll counteroffer $20k less or just hold onto it and perhaps be exposed to future realized losses.

Now you put 5% down so are you paying PMI?

[Boston ITer]

[GenXer]

[CC]

I guessed we probably misunderstood his problem. It's less than what he owe, but it's 70k less than his original purchase price. He probably had a down payment for $30k. Plus a 5% transaction cost, it may cost him $80k or even more, since there are just too many condos in the market today. The price he pay may not come back even after a decade.

If it's $80k, then we are talking about real money. It takes years to save something like that. I think if he has a salary for $140k a year, it could still be an option to just write a check; but if he has some difficulties and is still young (around 30), he should just walk away. Everyone makes mistakes anyway.

[balor123]

It may be $80k down but walking away won't make him $80k richer. His balance is $220k so $40k really is the number we should be considering. That being said, I generally agree that for the right amount of money I too would walk away and encourage everyone to walk away. I just don't think $40k is the right amount. $80k is pushing it though. I would play it somewhere around $100k - $200k as now you're talking about the ability to buy a house in cash with the savings.

[john p]

I'm sorry, what do you guys specifically mean by "walking away"?

Also, understand that things have a tendency to OVERCORRECT, and then correct quickly back to natural levels.

When I was initially looking to buy in 1999 or so, I was deciding on whether to buy a condo or get an MBA. The way I figured it was that house prices HAD NOT GONE UP IN ABOUT A DECADE, so why not put in a couple of years, increase my salary and then take on a 25 year note.

People aren't recognizing that a percentage of the Bubble was due to a correction of stagnant prices in the PRIOR decade. The surcharge was salary inflation, Big Dig money, Start-up / Technology money, and of course cheap capital. In absense of this current economic condition, I honestly think that prices are close to what they should be. Now that is a big thing to stipulate and it is like ignoring the gorilla in the room. The other big thing that we need to consider is that younger buyers are financially bonded due to college tuition skyrocketting. This lessens the pressure on prices, but that force is counteracted by couples waiting a longer time to have kids and buy homes. The question is how much pent up demand is there and how many people are actually in a position to buy right now? We'll see by watching sales this Spring and monitoring employment levels...

[outoflucktoo]

My husband and I are in a similar position. We bought a condo (townhouse style) back in 2004 (a year after graduating college) because everyone told us we needed to "get in now." So we thought we made the best financial decision by living at home for a year, saving up for a modest downpayment and getting our "starter home." Unfortunately it didn't work out that way. We realized we were in trouble a few years ago when we couldn't refinance. So we started saving and we now barely have enough to pay off the bank and a realtor and possibly get a new mortgage with a FHA loan or something.

Our house doesn't meet our needs anymore because we have one son (2 bed) and another on the way. My husband makes a great income (135k with a raise coming this year) and I'm home with my son. Luckily, we got fortunate and my husband's startup company (which he has equity in) is probably going to be bought and we will acquire a sizable amount of money to move and get a downpayment on the next house. If that doesn't happen then we're in the same exact position. So I feel your pain.

Good luck!

[balor123]

Why does $135k need an FHA income? That's got to be top 10% of income in this country and even they need special subsidies originally designed for bottom percentiles just to get by. This country has a serious cost of living problem.

Your mistake btw was buying a 2br I think. Even back then the recommended advice was a minimum of 5 years to purchase and with 1 kid you couldn't have stayed for that amount of time.

[outoflucktoo]

[balor123]

You didn't seem to take offense but I just want to clarify that you did something that was unreasonable. I also came close to buying twice and luckily I did not. The system is built to take advantage of starter home buyers. I think the system is stupid and predatory but like all Ponzi schemes it works as long as the music is playing. Anyway, that's really what I was criticizing.

Just out of curiosity, can I ask what kind of work your husband does? There's been several people here working for technology companies who've claimed salaries such as that but I don't see numbers like that on Glassdoor - certainly not base salaries. Is that doing technical work, management, sales? I'd like to be there some day and would like to know where I should be to get there Thanks!

[GenXer]

Looks like her husband has shares in a startup company. Very few of these make it, so if his did (and he's already making $135k a year), congratulations. Your mistake will be to buy a house in a rush simply because you have a 2nd kid. You will mortgage your future for sure if this is the way you'll play your windfall. You can save a lot more if instead of buying, you simply rent a bigger place, and either sell or rent out your current one. A startup being bought out happens once in a lifetime, so if you go ahead and simply spend that money, you will be back to square one. Given your student loan load ($80k), it sounds like you still can not afford to buy a house now (when prices are still too high for most people under $150k income). Also, unless you've been saving most of your husband's salary, and already have a six-digit sum saved in your savings and/or retirement accounts, you will need to do that first before attemtping to buy a house (given that you already have an underwater condo).

I just don't get it. It sounds like the march of the terminators. 'Gotta buy a house'. Is it the peer pressure? Something in the water? Wake up, most people can't afford to buy a house in a half-decent town, without sacrificing SOMETHING. Most people end up sacrificing their OWN retirement and financial independence. Its worse than sacrificing though - its squandering it, first by buying a house that drains all of their finances, followed up by paying full price for their kids' college, which puts a nail in the coffin of their retirement. By the time many people are 60, even having a $150k income will not save them one bit from relying on social security and their meager 401k savings. Doesn't take an oracle to see the future. Most people rely on luck to get then through life - some kids end up smart and do well, so no help required, but on average, that's not the case. I see plenty such people, and honestly, at that point they are beyond help (paying $50k a year for 2 kids in school, paying way too much for a mortgage in an 'immune' town even as kids have left to go to college). At that point, forget retirement - loss of a job or an unforeseen event (such as another real estate crash) will make that an impossibility (just look around - many people over 60 are nowhere near being able to retire).