QUOTE (gwasser @ Oct 26 2010, 09:36 AM) Michael has a point.
I have not been able to grasp all the details posted here. But I think it is time for some simple math and a review of your personal liabilities in all this.
It sounds like you bought a Calgary property. Say it was a single family property with 20%. So starting at a guestimated purchase price of $350K that means the investors had 75K down and you put up 25% thereof.
So that would mean your investment was around $19,000. I assume you bought in 2006 or 2007. Your propery value probably decreased by 10%. If it was a condo it could have decreased by about 30%. Assuming a property value decrease of 10% your property lost $35K and thus the investor`s equity went down to $40,000 and your share to $10,000
If the bank forecloses you will likely have even less money left. A lawyer estimates your legal costs to gain control is $10,000 at least and he is uncertain of the results. My comment is, double that amount and still be uncertain about the results. So if you would go that route, the remaining equity in your property is $20,000 and your share is down to $5000
You have a caveat registered on title - which is a good hook!
My suggestion, let the bank do your dirty work and foreclose. Let them deal with the VTB holder or let the holder take what is left after the bank is through. You just sit it out and any equity remaining is yours probably $0.
In the mean time you have a capital loss of close to $19,000 which you can use against future capital gains on other investments that maybe carried forward for many years while your personal income and tax rate are likely to go up. So, you have a good chance to recover through taxes 50% of $19,000 x 0.38 (Alberta`s top tax margin) somewhere in the future or around $3700.
This approach will reduce your real after tax loss to somewhere between $13,000 and $15,000. I suggest that you, (considering how young you are with many future investment opportunities) should be able to live with these results.
The other thing you must consider is your liability stemming from the mortgage and towards your tenants. Based on your story, I suspect you are not even registered on the mortgage and you are not liable for any of the JVs losses other than the original $19K. If so, I would just run! Otherwise have another talk with your lawyer to cover your liability aspects and see how you can keep that to a minimum.
See the whole experience not as a loss, but as a harsh learning opportunity that will save you a lot of grieve in future investments. Something that will prove worth a lot more than your current financial loss. Assets have value but a good education is priceless!
So let`s see if I can be clear in showing the financial situation.
Purchase price of the house (Feb 13, 2009) $300,000
First Mortgage @ 4.5% for 5 Years $247,000
VTB 2nd mortgage $ 30,000
Closing costs ??? Up to $ 17,850
The monthly rent for this house in Calgary was $1975.00
Approx. monthly mortgage $1250 + taxes, property tax, etc
Then in April and July of 2009 the company brought on myself and another investor and we contributed $27,000 each for a 25% share in it. The company retained "financial management of the property and held a 40% share and gave a 10% share to the fellow who registered the title in his name. The only monies put into the project was the $54,000 by the two investors. We were told that only approx $22,000 of the $54,000 was actually put towards the mortgage and the remainder into reserves [joint account with other properties] To date there is no reserve funds or cashflow available in the account and no real record of where it went provided by the company.
In March or April of this year without telling us the company re-negotiated with the VTB mortgage holder and ballooned the VTB from$30,000 to $43,000; included in that is interest payments of $150 per month at a rate of 10% and increasing to 13% interest. [side note is that to date the VTB has not been filed on the mortgage title as a caveat and we dont see evidence that the investor who is on the first mortgage signed the VTB mortgage documents]
Up until July of this year the property had been cashflowing $200-300 per month but around that time it was verified that there was no reserve and the cashflow was gone. There hasn`t been any major expenses on the property and no monies were paid to the investors. Tennants left a suite in July and there hasn`t been any new one until this month, and the new tennants are paying approx. $100.00 less
Right now the property taxes on the home are behind about 3-4 months ($800-1000 total) as well the mortgage is 3 months behind. We found out that the tennants smoke quite heavily and that the place will probably need to be repainted and carpets replaced/cleaned and hardwood floors refinished at some point.
The other investor and I are prepared to take the property over and put in some cash and try to bring the property back into a cashflow position. We drafted up a new contract and presented it to the company (perhaps they will return the documents tonight) and we will each have a 45% share instead of the 25%. I realize that we will have to be in this for the long haul, perhaps 10 years and may only get the return of our initial investment back.
We have tried to work with the holder of the VTB mortgage and create a situation that can work for him but he has not agreed to come to the table and so we need to consider the risks in moving forward without him. Well the first of the month is coming and the bank will need more funds to stave off foreclosure. We will see what happens. Anyone have comments or advice. I appreciate the insight.
Godfried, I like reading your responses and your comments might still hold true but I thought it would be fair to give you a better picture.
Take care all of you!
