A couple recently went through a divorce and had 2 properties. The first they bought in 2005 for $360k, lived there up until early 2009 and bought another property for $650k keeping the first as an investment. Buoyed by low interest rates at the time and oblivious to the macro situation in early 2009, they leveraged up. At the time their first property was valued at $420-430k with approx 80-90k of equity(owing $340k). So yes, essentially 80-90k down on 900k, but they have 180k PA income so the bank deemed it as responsible and would lend up to 1.2 million. Happy days ahead.
Come the end of 2009, interest rates were going up and they were surprised by consecutive raises as it didn't happen this way during the last tightening phase. They also split up, not related financial pressures.
Party A kept the first house and Party B kept the new house. The new house and Party B is story for another time, but we will follow through on Party A and the first house.
They split the equity on the first home based on a price of $450k meaning they 'pocketed' 55k each. Party A had to borrow $410k to buy out the remaining loan, pay the 55k to party B and pay for fees,lawyers etc. So now individually Party A now owed a lot more on the property than when they collectively bought it in the first place.
It was suggested by many to just sell as it would be stretching the finances to keep it, but due to the parents influence/advice( owning multiple investment properties ) it was deemed of high importance to keep on the property ladder.
Over the last year its been costing $350+ per week for Party A to keep the house as it had a lease in place and another $220 per week to share a rental.
It's now March 2011 and Party A is looking to sell the house as there is a new relationship with Party C and they are looking to buy a house of their own. To their shock the house is valued at $420k now. Taking into account all the potential costs to sell and ongoing costs over the last year, they would need well over $420k to essentially break even.
What to do for Party A and Party C? Lets move back to the first house as the lease has expired, spend a bit to tidy it up and wait for prices to strengthen again. That's where I'll leave it as I'm lost for words on too many fronts.
