Article Marketing | Article | Directories | Contents | Investment Property and Strategic Defaults

Investment Property and Strategic Defaults

Posted on July 31, 2010
Filed Under Finance, Investment | Leave a Comment

The recent slowdown in the housing market, including areas like Orlando FL real estate and the massive drop in the rates of real estate value have brought a lot of new scenarios. Many house owners find that their mortgage is actually costing more than what the house is worth. This could lead to a scenario where you prefer to walk away from the mortgage and let the bank do the foreclosure. This could be due to a few reasons. If you are someone who is having trouble paying the monthly mortgage payments because of low income, you might be eligible for a deduction in loan and a reduction in mortgage interest etc. The other scenario is when you are financially capable of making the payment but decide to walk away from the mortgage. This is called strategic defaulting and you might have to consider quite a few factors before taking this decision.

The first thing to consider is the financial aspect in terms of how much you save by doing this. On one end you wouldn’t have to make the mortgage payments every month and also can get rid of the taxes, upkeep and maintenance. On the other side you have to take into account the rentals and also the appreciation of the property in the coming years that will push the rentals too. Meanwhile you can also take into account the other places where you can invest the money saved such as retirement funds.

Another point to consider is the tax implication of walking away from a mortgage. The lender can send you a 1099. This will force you to declare the forgiven debt as an income. This could lead to two problems. Firstly, if the debt is very high, your income statement will have a large taxable income thus raising the amount of income tax that you would be paying. The second more serious problem would be that this extra income can actually push you into a higher tax bracket than where you would be without it thus raising your overall taxes significantly.

Another effect of foreclosure that you need to consider is the lowering of the credit score. Credit score is important and it is highly essential to maintain a good level of creditworthiness to get loans in the future or credit cards etc. The foreclosure and the missed monthly payments will cause the credit score to drop drastically. For those who are underwater, with home value less than the mortgage left, this might not be so significant. (However some investors are planning these defaults on things like Orlando investment property since the bad credit will affect their LLCs holding the property.)

Share This Article

Related Posts

  1. The Best Approach For 10000 Loan With Bad Credit
  2. What are investment grade corporate bonds and are they beneficial
  3. Are Mortgages After Bankruptcy Possible?
  4. FICO Scores: Getting Credit Where Credit Is Due
  5. Raising Your Credit Score is Possible, But Not Overnight

Comments

Leave a Reply




-->