Questions
& Answers
Question: I own a condo worth $180,000
(mortgage free). Due to my elderly parents health I am considering
moving in with them to care for them. (They live in the same
complex.) I find myself with two options: sell my condo outright
and invest the money in a safe CD or rent the unit. The first
plan might bring in $5,500 in interest. Renting would bring
in $8,500 after taxes and association fees. Should I consider
other factors beside the numerical figures? I also co-own
my parents condo with them.
Answer: First, see if it's okay to rent
your unit under condo rules. Second, consider that condo
units can both generate rent and appreciate -- though neither
is guaranteed. Third, you'll be able to easily oversee the
property if you rent. That's a huge plus.
Question: I have a friend who is trying
to convince me to go in as a partner with him on a rental
property (two family house), he said we should buy now because
the mortgage rates are so low, this house is in a market
which is at its all time high right now.
We are not looking to stay in this investment long term.
My opinion is that this would be a bad investment due to
the fact that if the property is purchased today for $500,000,
then in a couple years the interest rates rise and the property
value comes down we would actually have to sell for less
then what we paid for the property.
Am I correct in thinking this would be a bad investment?
Answer: You are certainly correct in thinking
that higher interest rates dampen real estate demand. As
to whether this particular property is or is not a good
investment, that requires a look at a variety of factors.
For instance: Is the local population increasing? Is new
home construction keeping up with demand? Is the local economic
base growing? Will the rental produce a positive cashflow?
Is the property in the path of future growth? Etc.
Question: With regard to California real
estate, the question that I have is as follows: Is it expected
that California home prices go down in the near future?
I am looking at homes now, but the prices are outrageously
expensive. And my concern is that I wouldn't want to buy
something, if the price of the property is likely to drop.
Answer: Nobody knows what will happen
to future real estate values. Seers, soothsayers, economic
advisers, Wall Street analysts and real estate columnists
are all equally unable to divine tomorrow's home prices.
Real estate has two values, it's an investment and it has
utility as a residence or rental. As an investment and a
rental, it has an element of risk and uncertainty. The marketplace
is always unpredictable, the very reason some people buy
while others sell.
Question: Exactly how do consumers use
housing information on the Internet to drive down commissions?
Commissions offered to agents aren't public.
Answer: The impact of the Internet on
real estate commissions is not clear.
"Consumers," says The Wall Street Journal, "are
bargaining harder with real-estate agents over commissions,
which have become much more lucrative for agents as home
prices have soared. The average national commission has
fallen to about 5.1 percent from 6 percent in the early
1990s, industry publication Real Trends estimated last year."
("Realtors May Revise Internet Policy," May 16,
2005)
However, while there is evidence that brokerage fees have
declined in the past decade, the reasons why are uncertain.
Is it online competition? Not hardly. Online sites and services
are an additional transaction cost because the services
of local brokers are still required. As well, consider that
vast amounts of online medical and legal information have
not reduced fees for doctors and lawyers.
Question: My husband purchased his condo
30 years ago. He is has paid off the loan. My husband and
I have been together for 12 years today and have been married
for four. We would like to add me on as owner of our condo.
We were told that I would need to be added to the deed of
trust. I can not vote at our condo meeting until I am an
owner. We were told that we needed to consult a realty attorney.
Can I be added to the deed of trust without an attorney?
Answer: Any attorney or legal clinic can
quickly and easily add your name to the title. The cost
should be minimal and because you want it done right it
makes sense to engage a professional. However, not having
your name on the title is a substantial risk. There are
huge benefits to owning property as a married couple in
terms of asset protection, taxes and estates. Please see
a lawyer immediately.
Question: I recently placed my townhouse
on the market. The buyers have applied for a loan but their
broker refuses to give me a copy of the appraisal. As the
owner shouldn't I get a copy?
Answer: No. The appraisal was ordered
by the lender and paid for by the borrowers. As long as
the loan is approved it's none of your business. However,
if the appraisal comes in below the sale price and the purchasers
ask for a price reduction, you would then be on good grounds
to ask for a copy.
Question: I will have lived in my home
for 18 months when I sell. I have been given new military
orders forcing me to move. Are there any loopholes or clauses
that will allow me to not pay capital gains on the home,
since I was forced to move for military reasons?
Answer: To fully write-off capital gains
profits from the sale of a personal residence you typically
need to have lived in the property for two of the past five
years. However, under the Military Family Tax Relief Act
(PL 108-127), the IRS says that the "law allows persons
on qualified extended duty in the U.S. Armed Services or
the Foreign Service to suspend this five-year test period
for up to 10 years of such duty time. A taxpayer is on qualified
extended duty when at a duty station that is at least 50
miles from the residence sold, or when residing under orders
in government housing, for more than 90 days or for an indefinite
period."
However, your question does not concern maximizing the
five-year write-off term, instead it involves a reduction
of the two-year minimum. In this case you may be able to
rely on two "safe harbor" exceptions.
A safe harbor, according to the IRS, "is a set of
certain facts and circumstances that qualifies you to claim
a reduced maximum exclusion."
One safe harbor is that you have moved at least 50 miles
as a condition of employment.
Another possible safe harbor is the "unforeseen circumstances"
test. The IRS explains that "the sale of your main
home is because of an unforeseen circumstance if your primary
reason for the sale is the occurrence of an event that you
could not reasonably have anticipated before buying and
occupying your main home. You are not considered to have
an unforeseen circumstance if you sold your home after August
12, 2004, and the primary reason you sold it was that you
preferred to get a different home or your finances improved."
Reducing the two-year minimum requirement will provide
a proportionate reduction of your ability to take capital
gains. Example: 18 months is 75 percent of two years. If
you have a capital gain of $20,000, you will be able to
shelter $15,000.
Given that it's in the national interest to encourage military
participation, it is difficult to believe that you will
not qualify for at least some capital gains protection under
safe harbor rules. For details please see a tax professional
or a military attorney. As well, be sure to ask if there
are other special rules for members of the active military.
Question: I am planning to buy a new construction
house in a land which is being divided into 11 lots. The
lot I am planning to buy is an irregular one, i.e. it is
triangle shaped. What are the disadvantages of irregular
lots? Will I have any problems while reselling the house?
Answer: The real concern here is not so
much the shape of the lot as the utility of the property.
If the property has enough square footage so that you can
build a home, have privacy and maintain an appearance and
use which are consistent with nearby homes then the shape
of the lot should not be an issue.
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Written by Peter G. Miller for REALTY TIMES, July 1, 2005
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