Many investment property owners are finding that refinancing is no longer as straightforward as it once was. Equity Advantage CEO David Moore understands that the challenge is more than simply getting a new loan. Sometimes refinancing can set off a chain of events that could leave property owners with an unexpected tax bill, even after losing the property to foreclosure.
Why Higher Interest Rates Make Refinancing More Difficult
Even if refinancing is possible, today’s interest rates are much higher than what many property owners are paying now. What used to be financing at 3.5% or 3.8% has jumped to 6% or 7%. When borrowing costs increase that much, an investment property may no longer work financially. It becomes much harder to support the debt.
How Excessive Debt Can Increase Foreclosure Risk
Higher interest rates can become an even bigger problem when an investment property already carries excessive debt. In some cases, refinancing with today’s rates may not be enough to keep the property financially viable.
When that happens, foreclosure can become a real possibility. Foreclosure, however, is not always the end of the financial consequences.
Why You Could Still Owe Taxes After Losing the Property
What many property owners do not understand is that foreclosure may not end the financial consequences. If the debt exceeds the property’s basis, foreclosure can create phantom gain on an income property, leaving the property owner with an unexpected tax bill even after the property is gone.
When Refinancing May Not Be Enough
Getting a property refinanced may not solve the problem. Even if refinancing is available, today’s higher interest rates can change whether an investment property still works financially. When excessive debt is involved, refinancing may still result in losing the property and facing a large tax bill.
If you are facing refinancing challenges or have questions about your investment property, contact Equity Advantage to speak with an Exchange expert about understanding your options before financial challenges become even more difficult to address.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
FAQs About Investment Properties and Refinancing
Can refinancing at today’s interest rates make it harder to keep an investment property?
Yes. Even when refinancing is available, today’s higher interest rates may mean an investment property no longer works financially, making it much harder to support the debt.
Can refinancing still lead to foreclosure?
Yes. Even if refinancing is available, today’s higher interest rates may mean an investment property can no longer support its debt, and it can fall into foreclosure.
Can you owe taxes after losing an income property to foreclosure?
Yes. If the debt exceeds the property’s basis, foreclosure can create phantom gain on an income property, leaving a property owner with an unexpected tax bill even after losing the property.
