I've got a 6 plex in KC, MO that I own with a partner. We are in CA and are absentee owners/managers. We have gone from being fully rented to having only 1 renter for about the last year. We have owned the property for about 2.5 years. We continually have negative cash flow and have sunk thousands into the building to keep it nice and to try to get it rented. The neighborhood is deterioriating and we have gone through several management companies. The current manager says the outlook is bleek for gettting tenants in that part of town.

We are considering calling the bank and telling them we are going to have to walk away. It appraised for $250k when we bought it, we owe about $197k.

What types of stategies can I use with the bank to get them to take this property back as is and essentially walk away?

Thanks,

You can try talking to them and telling them what the situation is, but more than likely you will be on the hook for the deficit and legal costs on top of it.

A couple of things to remember, and this will be a good lesson for those out there that think that real estate can only go up.

1- The property is no longer worth $250,000. Rental property is usually assessed using "the income approach", and only one tenant in 6 units is going to hurt the valuation hard.

2- The bank will take over and put it in the market, but if you guaranteed the deal, the lender will be coming after you for the difference. You might be able to arrange for them to finance the difference in a workout situation.

3- Being non-confrontational is very important. The lender has more resources than you and remember that you signed a document that probably setup the venue as MO not California. Talk about a long trip for trial.

Good luck.


P.S: I would probably sell it for what I could get and arrange for financing on the shortfall with the lender.

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".... and this will be a good lesson for those out there that think that real estate can only go up."


Admins said it best. This is also an example of how a house is a house is a house and how commercial RE differs from residential. There are simply more variables at play.

To address your situation; Banks hate to take over properties. Not only does it cost us to manage a property, more importantly, as the loans are usually parts of securitizations, lost revenue has to be made up. Banks, especially nation wide institutions have long memories and large hard drives . Be wary of the ‘101 ways to negotiate with a bank’ sermons, they usually are biased to begin with. Banks have been at this game much longer and will always reserve the upper hand unless you stand to give them significantly more business in the future. Your credit is at risk here and derived from that of course is your future borrowing ability.

I would recommend that you try to get a govt conduit interested such as HUD or some special interest program at the state or fed level. Every state has a few; u can try to see if your property qualifies. You may be able to lease the property to them. Try to offer the entire property to a local organization, advertise vacancies at local institutions such as a hospital, college, church etc. Unless the entire area is in severe economic decline, you should be able to fill vacancies with a bit of effort. Since you are absentee owners, you can either attempt to do this your self or hire the right person to be the point man/woman to fill the vacancies. Feel free to give me buzz if you have any questions or concerns. Thanks, Naj