Very simply I bought an old home to rehab. This is not a flip, my family and I reside there. Recently, I finished the first of three stages in the rehab and had the home re-appraised. I found that the home depreciated 100K below the purchase price. This means that, additionaly, I also lost the ~40k worth of improvements I invested. So, I have a net loss of 140k in equity. Furthermore, as a result of the depreciation, I am underwater on the mortgage by about 80K.
So, here is my dilemma: Do I continue to spend money improving a house that has a mortgage that is underwater? What are the general rule(s) of thumb or things that I should consider?
More specifically, I am smack in the middle of converting a 2flat to a single family home. Average value of a 2-flat in the area is 420K according to apprasial report the average value of single family homes is 600K. I am in no-man's-land on my rehab. These are my options:
(1) Finish as planned and get to a single family home within the next 5 years. (Without available financing not sure how I'll get to this, but not impossible)
(2) Alter the plan and create a very nice duplex unit, but keep the building a 2-flat (not sure if this would increase the value based on the appraisal?!??!? but it would be MUCH less expensive than option 1).
(3) Stop spending money on home improvements because we are underwater on the mortgage already and use all spare money to pay down the un-refinancable 2nd mortgage. Or save the money.
Looking for advice.