Rental property investing is a great way of making your money work for you. If you are renting out an income property and paid a fair price for it, then in the long run you are almost guaranteed to realize an excellent return on your investment. However, if you've overpaid for a property, you may find that the rent you receive from the tenants is not enough to cover the expenses of the property, like the mortgage. In this scenario, foreclosure is a real possibility.
Impact of Investment Property Foreclosure
Obviously no one wants to become a foreclosure case, but in certain situations it is unavoidable. Unfortunately, being foreclosed on can be financially devastating. First and foremost, you will lose your investment and get nothing in return. Not only will this impact your livelihood, but you will also lose any money you put into the property, such as the down payment. Also, there is an opportunity cost; That is, you no longer have the money to invest in a property that will actually bring you a return.
There is also the damage to your credit history. Any rental property investor absolutely must have access to credit and loan facilities to acquire and maintain their properties. Simply put, having good credit is critical to the survival of your business. Foreclosure can mean that you will not be able to access loans for the next seven years, as it takes this long for a credit blemish to wipe clean.
The bottom line is that all of these things together will create a ripple effect that will permeate your entitlement financial situation. It is therefore important that you look for other ways to stem off foreclosure on your investment property.
Avoiding Investment Property Foreclosure
The best option is to try and sell the property and essentially cut your losses. You will need the help of a realtor with experience in such situations to assist you in selling the property. You may be forced to put up the property for short sale, which means that it will be sold for an amount that is less than what you owe on the mortgage. This is something that you will have to negotiate with the mortgage company so that you know what your target price should be even though you are selling on a short sale. This will help you set your expectations accordingly.
Another option when you are facing foreclosure on your investment property is to seek help from the government. There are several new programs sponsored by the government that are designed to help people facing foreclosure, no matter whether the foreclosed property is a residence or an investment. Do a quick Google search and you will find everything you need to know about these programs on page one of the search results.
Another option is to approach your mortgage lender and request a refinance. Many times you will be able to get a loan modification, which will reduce your monthly payments. This is especially true considering the original loan probably had a reliably high interest rate by virtue of the fact that it was used to finance an investment property.
Foreclosure on an investment property can have far reaching financial effects that are typically difficult to recover from. So do what you can to save yourself from this unpleasant result. If you can dump the property and cut your losses, participate in a government program, or refinance with your lender, your credit score will be spared and you will be able to recover and start investing again sooner.