Monday, June 23, 2008
From Marriage Partners to Business Partners
Dear Sue,
I am in the middle of divorcing my husband. Thank God it is an amicable separation, but we still must divide over 25 years of accumulated assets.
Since the real estate market isn’t very kind to sellers right now, we both think that trying to sell our home right now would be a bad idea. We want to sever the attachments of our relationship as soon as possible, but we think it is better to wait to sell our home when prices may be higher.
Is there any way of selling our home later while going our separate ways now?
Separated Sally
Dear Sally,
In my experience working with attorneys and divorce, the division of community property is never easy. In many cases it is down right messy! I am happy to hear that your separation is amicable.
The last asset to be divided in a divorce is usually the home. Since it is symbolically the last connection in the relationship, frequently the ex-partners can have great difficulty letting go. Did you ever see the movie, “War of the Roses?”
Since letting go is really a process, it may be wise to take your time and not rush into a sale, especially in the current downturn.
As I see it, you have several options. The first option, which is the most common, is to sell immediately and divide the remaining equity, if any. If there is no equity, a short sale or foreclosure may be the only options if you choose to sell now.
If you choose to sell later you must treat your home as a business asset or investment property. This requires an evolution from romantic partners to business partners. It requires that you both be objective and analytical in your dealings. This can be very difficult if not impossible unless you engage a neutral third party such as a mediator, business advisor or property manager.
Selling later will require that your home become an investment or rental property. If one of the partners wants to live in the property, the partner will become a tenant while also being a landlord. This means that the tenant partner will pay rent but also share in the expenses of principal and interest payments, maintenance, repair, taxes and insurance.
For example, if the rent is $1400 a month (determined by the current rental market) and the payment including taxes and insurance is $1000 a month, the partners divide the $400. If repairs or maintenance are required, both parties share the burden 50/50. The write-offs and tax benefits of owning the investment property are also shared.
For tax purposes, don’t hold the home as rental property more than three years if you want to take advantage of the $250,000 each, tax free gain only available on personal residences.
You may find that you are better business partners than romantic partners and decide to keep the investment property.
Making the transition from romantic partners to business partners can be a matter of Good Home $$s and Sense.
I am in the middle of divorcing my husband. Thank God it is an amicable separation, but we still must divide over 25 years of accumulated assets.
Since the real estate market isn’t very kind to sellers right now, we both think that trying to sell our home right now would be a bad idea. We want to sever the attachments of our relationship as soon as possible, but we think it is better to wait to sell our home when prices may be higher.
Is there any way of selling our home later while going our separate ways now?
Separated Sally
Dear Sally,
In my experience working with attorneys and divorce, the division of community property is never easy. In many cases it is down right messy! I am happy to hear that your separation is amicable.
The last asset to be divided in a divorce is usually the home. Since it is symbolically the last connection in the relationship, frequently the ex-partners can have great difficulty letting go. Did you ever see the movie, “War of the Roses?”
Since letting go is really a process, it may be wise to take your time and not rush into a sale, especially in the current downturn.
As I see it, you have several options. The first option, which is the most common, is to sell immediately and divide the remaining equity, if any. If there is no equity, a short sale or foreclosure may be the only options if you choose to sell now.
If you choose to sell later you must treat your home as a business asset or investment property. This requires an evolution from romantic partners to business partners. It requires that you both be objective and analytical in your dealings. This can be very difficult if not impossible unless you engage a neutral third party such as a mediator, business advisor or property manager.
Selling later will require that your home become an investment or rental property. If one of the partners wants to live in the property, the partner will become a tenant while also being a landlord. This means that the tenant partner will pay rent but also share in the expenses of principal and interest payments, maintenance, repair, taxes and insurance.
For example, if the rent is $1400 a month (determined by the current rental market) and the payment including taxes and insurance is $1000 a month, the partners divide the $400. If repairs or maintenance are required, both parties share the burden 50/50. The write-offs and tax benefits of owning the investment property are also shared.
For tax purposes, don’t hold the home as rental property more than three years if you want to take advantage of the $250,000 each, tax free gain only available on personal residences.
You may find that you are better business partners than romantic partners and decide to keep the investment property.
Making the transition from romantic partners to business partners can be a matter of Good Home $$s and Sense.
Wednesday, June 18, 2008
Make the Price Right!
Warren Buffet attributes much of his wealth to buying when other people are fearful and selling when they are feeling greedy.
The recent increase in sales volume in Placer County appears to indicate just that some people must be taking this advice.
When I returned from my vacation I picked up my phone and started interviewing several top producing, real estate agents. I wanted to know what was going on in the market today. I asked each agent if they had any advice to offer.
Pam Moore of Lyon’s insists that price is the key! Pam believes that when a seller lists their home for sale, they must be ready to move. They need to have their home “show ready” at all times.
Pam’s advice, “Take the advice of your agent!”
Pam explained that the longer an over priced property stays on a declining market, the less money a seller will ultimately get. Sellers continue to pay taxes, insurance, HOA dues, maintenance and house payments while the home’s value continues to go down.
Pam says, “If you don’t need to sell now, I suggest keeping your home off the market!”
Mike Robinson of Remax Gold agrees. He says that if you don’t have to sell right now, don’t put your home on the market.
“I think we are sitting on 2003 prices. Buyers and sellers just have to understand that prices go up and down but in the long run the trend is up.”
Patrick Hake of Remax Gold, like Mike Robinson, enjoys analyzing the numbers.
“Sales volume is up in Placer County while prices are down about 25% since last year,” Patrick says.
Sellers wouldn’t bring their prices down last year to a level that buyers were willing to pay. Patrick thinks that as soon as last year’s wave of foreclosures swept the area, the shear volume brought prices down and forced the sellers that were not distressed to compete and bring the prices in line with the competition.
Patrick reported that of the 2544 residential properties currently on the market in Placer County, approximately 28% are short sales and 10% are bank owned. An astounding 38% of the current inventory is distressed.
There are currently 801 pending sales. 21% are short sales and 37% are bank owned. 58% of the pending sales are distressed.
In March through May of 2008 there were 1116 closed sales. 7% were short sales and 44% were foreclosures. 51% of the closed sales were distressed.
Patrick continued to explain that the magic number for an even market is 6 months of inventory. In other words, if no new inventory was added, and the current rate of sales continued, the inventory would be depleted in 6 months.
Patrick said that we IWW have 6.25 months or inventory in Placer County compared to over 10 months of inventory in Auburn.
Auburn doesn’t have nearly the troubled inventory that south Placer has. Auburn didn’t create a lot of new inventory. Consequently the troubled properties are due to refinances not purchases.
Kelly Richardson of Hometown Realtors sees flurries of activity in the market right now, particularly in short sales and foreclosures. The areas of activity are primarily in Lincoln and below. In our immediate area we now have a lot of activity in the under $400,000 market range. One can now find homes in the Auburn area under $300,000, which was unheard of 2 years ago.
Kelly says, “Buyers are crazy if they aren’t armed with pre-approval letters and out there buying! The buyers in today’s market are a combination of investors, move-up and first-time buyers.”
“Sellers that are priced right are receiving multiple offers. The banks are the ones receiving most of the multiple offers because they are pricing to sell. Sellers that aren’t priced right are missing out!” she continued.
Pricing your home right is a matter of good Home $$s and Sense.
The recent increase in sales volume in Placer County appears to indicate just that some people must be taking this advice.
When I returned from my vacation I picked up my phone and started interviewing several top producing, real estate agents. I wanted to know what was going on in the market today. I asked each agent if they had any advice to offer.
Pam Moore of Lyon’s insists that price is the key! Pam believes that when a seller lists their home for sale, they must be ready to move. They need to have their home “show ready” at all times.
Pam’s advice, “Take the advice of your agent!”
Pam explained that the longer an over priced property stays on a declining market, the less money a seller will ultimately get. Sellers continue to pay taxes, insurance, HOA dues, maintenance and house payments while the home’s value continues to go down.
Pam says, “If you don’t need to sell now, I suggest keeping your home off the market!”
Mike Robinson of Remax Gold agrees. He says that if you don’t have to sell right now, don’t put your home on the market.
“I think we are sitting on 2003 prices. Buyers and sellers just have to understand that prices go up and down but in the long run the trend is up.”
Patrick Hake of Remax Gold, like Mike Robinson, enjoys analyzing the numbers.
“Sales volume is up in Placer County while prices are down about 25% since last year,” Patrick says.
Sellers wouldn’t bring their prices down last year to a level that buyers were willing to pay. Patrick thinks that as soon as last year’s wave of foreclosures swept the area, the shear volume brought prices down and forced the sellers that were not distressed to compete and bring the prices in line with the competition.
Patrick reported that of the 2544 residential properties currently on the market in Placer County, approximately 28% are short sales and 10% are bank owned. An astounding 38% of the current inventory is distressed.
There are currently 801 pending sales. 21% are short sales and 37% are bank owned. 58% of the pending sales are distressed.
In March through May of 2008 there were 1116 closed sales. 7% were short sales and 44% were foreclosures. 51% of the closed sales were distressed.
Patrick continued to explain that the magic number for an even market is 6 months of inventory. In other words, if no new inventory was added, and the current rate of sales continued, the inventory would be depleted in 6 months.
Patrick said that we IWW have 6.25 months or inventory in Placer County compared to over 10 months of inventory in Auburn.
Auburn doesn’t have nearly the troubled inventory that south Placer has. Auburn didn’t create a lot of new inventory. Consequently the troubled properties are due to refinances not purchases.
Kelly Richardson of Hometown Realtors sees flurries of activity in the market right now, particularly in short sales and foreclosures. The areas of activity are primarily in Lincoln and below. In our immediate area we now have a lot of activity in the under $400,000 market range. One can now find homes in the Auburn area under $300,000, which was unheard of 2 years ago.
Kelly says, “Buyers are crazy if they aren’t armed with pre-approval letters and out there buying! The buyers in today’s market are a combination of investors, move-up and first-time buyers.”
“Sellers that are priced right are receiving multiple offers. The banks are the ones receiving most of the multiple offers because they are pricing to sell. Sellers that aren’t priced right are missing out!” she continued.
Pricing your home right is a matter of good Home $$s and Sense.
Wednesday, April 30, 2008
Working too Hard for the Money!
Dear Sue,
My plan to create some passive income from my real estate investment has failed!
My plan was to buy a house, fix it up and rent it out. I figured that I could do the work myself and add value with “sweat” equity. I would then rent it out to a good tenant. I thought that I would get enough rent to more than cover expenses and have a little left over. I was really looking forward to that “left over money.”
Now I find that I am working on my rental property in all my spare time. So much for so called “passive” income. I feel like I have another job.
I had no idea that owning income property would be so labor intensive. I would like my income to really be passive. Any ideas?
Tired Ted
Dear Ted
I envy those that have the skills and time to do what it takes to add value to a run down property.
Investors purchase properties expecting a return on their investment. The return can be from rents, appreciation or adding value like you did by fixing up the property. The value added to a property through rehabilitation is generally more immediate and over time can have a much higher rate of return.
I don’t understand why you are still constantly working on your property. Are you forced to work around a tenant living at in the property? Do you have an on-going maintenance issue or do you just not know when to stop?
If you have an on-going maintenance issue, engage a professional and get it handled once and for all. If you don’t know when to stop, just stop. Your income will become passive the minute that you do. It is as simple as it sounds. More power to you if a tenant is letting you rehab the property while he/she is occupying it. That’s a landlord’s dream.
I realize that most publications tout the benefits of owning income or investment property. In reality, there are several disadvantages or potential pitfalls in owning investment property. Among them is signing up for a second job like you did.
Other disadvantages to consider are vacancies, bad tenants, liability issues or unexpected repairs. These disadvantages can be minimized by taking the job of being a landlord seriously.
It would be prudent to build a legal and tax team to help you with a plan. Hire a reputable property manager to assist you with advertising for and qualifying tenants. A professional property management company has access to repairmen, contractors and cleaners at reasonable prices. They also have critical knowledge of landlord / tenant law. It’s better to spend hours in the library on research than hours fighting it out in the courts.
Being aware of the disadvantages of owning investment property and working with professionals can be a matter of good Home $$s and Sense.
My plan to create some passive income from my real estate investment has failed!
My plan was to buy a house, fix it up and rent it out. I figured that I could do the work myself and add value with “sweat” equity. I would then rent it out to a good tenant. I thought that I would get enough rent to more than cover expenses and have a little left over. I was really looking forward to that “left over money.”
Now I find that I am working on my rental property in all my spare time. So much for so called “passive” income. I feel like I have another job.
I had no idea that owning income property would be so labor intensive. I would like my income to really be passive. Any ideas?
Tired Ted
Dear Ted
I envy those that have the skills and time to do what it takes to add value to a run down property.
Investors purchase properties expecting a return on their investment. The return can be from rents, appreciation or adding value like you did by fixing up the property. The value added to a property through rehabilitation is generally more immediate and over time can have a much higher rate of return.
I don’t understand why you are still constantly working on your property. Are you forced to work around a tenant living at in the property? Do you have an on-going maintenance issue or do you just not know when to stop?
If you have an on-going maintenance issue, engage a professional and get it handled once and for all. If you don’t know when to stop, just stop. Your income will become passive the minute that you do. It is as simple as it sounds. More power to you if a tenant is letting you rehab the property while he/she is occupying it. That’s a landlord’s dream.
I realize that most publications tout the benefits of owning income or investment property. In reality, there are several disadvantages or potential pitfalls in owning investment property. Among them is signing up for a second job like you did.
Other disadvantages to consider are vacancies, bad tenants, liability issues or unexpected repairs. These disadvantages can be minimized by taking the job of being a landlord seriously.
It would be prudent to build a legal and tax team to help you with a plan. Hire a reputable property manager to assist you with advertising for and qualifying tenants. A professional property management company has access to repairmen, contractors and cleaners at reasonable prices. They also have critical knowledge of landlord / tenant law. It’s better to spend hours in the library on research than hours fighting it out in the courts.
Being aware of the disadvantages of owning investment property and working with professionals can be a matter of good Home $$s and Sense.
Wednesday, April 23, 2008
Who Makes up Home Prices?
An Auburn Journal reader recently asked a question in the Opinion page:
What causes a $230,000 hike in the price of a home?
Who decides the price of 55-year-old home that is 900 square feet and in medium condition?
The house was built in 1953 and in 1995 was priced at $90,000.00 and was for sale in 2007 for $320,000.00.
What constitutes that amount of price hike for that house?
Do our Realtors decide the prices?
William and Norma Pullen
Meadow Vista
Dear Mr. and Mrs. Pullen,
I thought your letter was a very good one.
I asked Kris Forster of Brockway properties to help answer your question. Kris has been a certified and active professional appraiser for over 25 years.
“Realtors do not establish home prices, buyers do,” said Kris.
Kris explained that real estate values are influenced by supply and demand. For example, a seller’s market (higher real estate values.) is created when buyers have very little to choose from. The shortage forces buyers to compete for the same properties resulting in higher prices.
“Our most recent experience was between 2001 and 2005. It wasn’t uncommon to see offers come in over asking price with the only contingency being able see the inside of the home!” continued Kris. “Homes were often sold within hours of hitting the market.”
Today is a different story. It’s a buyer’s market (lower real estate values.) According to Kris, we have an over supply in relationship to the demand. With so much inventory to choose from, buyers are taking their time. Sellers are lowering their prices in hopes of attracting buyers and homes are taking much longer to sell.
Areas that have offered a number of entry-level homes and have experienced a lot of new construction such as Lincoln, are seeing a greater decline in real estate values than the “move-up” areas such as Auburn where resales predominate. Auburn’s home values have held up to a much greater degree because the housing stock is more mature. There are also fewer foreclosures in the Auburn area.
The Downtown and Midtown Sacramento markets, according to Kris, are actually experiencing price increases because the supply and demand is right in line.
Today’s buyer’s market has also been complicated by rising fuel prices and a change in financing. Kris explained that in past seller’s markets, buyers would typically commute to out lying areas because of the affordability factor. High fuel prices have wiped that edge out. Last year’s $300 per month gas bill is now $600 per month and expected to rise! The higher cost of a commute comes right out of the buyer’s income and significantly limits their buying power.
The tighter qualifying guidelines for today’s buyers has had an enormous impact on demand. The hybrid stated income loans and 125% financing programs are a thing of the past. These changes have taken a lot of buyers out of the market. Fewer buyers equals lower price.
The entry level markets in Roseville, Rocklin and Lincoln seem to be revving up again. Multiple offers are being reported. Statistics indicate that the prices in these markets have hit the bottom. When investors show up it is a definite sign of a market poised for an eventual upturn.
I agree with Kris Forster. Buyers and sellers set prices. It’s the Realtor’s job to interpret the market and market trends. Understanding the forces that drive the market is a matter of good Home $$s and Sense.
What causes a $230,000 hike in the price of a home?
Who decides the price of 55-year-old home that is 900 square feet and in medium condition?
The house was built in 1953 and in 1995 was priced at $90,000.00 and was for sale in 2007 for $320,000.00.
What constitutes that amount of price hike for that house?
Do our Realtors decide the prices?
William and Norma Pullen
Meadow Vista
Dear Mr. and Mrs. Pullen,
I thought your letter was a very good one.
I asked Kris Forster of Brockway properties to help answer your question. Kris has been a certified and active professional appraiser for over 25 years.
“Realtors do not establish home prices, buyers do,” said Kris.
Kris explained that real estate values are influenced by supply and demand. For example, a seller’s market (higher real estate values.) is created when buyers have very little to choose from. The shortage forces buyers to compete for the same properties resulting in higher prices.
“Our most recent experience was between 2001 and 2005. It wasn’t uncommon to see offers come in over asking price with the only contingency being able see the inside of the home!” continued Kris. “Homes were often sold within hours of hitting the market.”
Today is a different story. It’s a buyer’s market (lower real estate values.) According to Kris, we have an over supply in relationship to the demand. With so much inventory to choose from, buyers are taking their time. Sellers are lowering their prices in hopes of attracting buyers and homes are taking much longer to sell.
Areas that have offered a number of entry-level homes and have experienced a lot of new construction such as Lincoln, are seeing a greater decline in real estate values than the “move-up” areas such as Auburn where resales predominate. Auburn’s home values have held up to a much greater degree because the housing stock is more mature. There are also fewer foreclosures in the Auburn area.
The Downtown and Midtown Sacramento markets, according to Kris, are actually experiencing price increases because the supply and demand is right in line.
Today’s buyer’s market has also been complicated by rising fuel prices and a change in financing. Kris explained that in past seller’s markets, buyers would typically commute to out lying areas because of the affordability factor. High fuel prices have wiped that edge out. Last year’s $300 per month gas bill is now $600 per month and expected to rise! The higher cost of a commute comes right out of the buyer’s income and significantly limits their buying power.
The tighter qualifying guidelines for today’s buyers has had an enormous impact on demand. The hybrid stated income loans and 125% financing programs are a thing of the past. These changes have taken a lot of buyers out of the market. Fewer buyers equals lower price.
The entry level markets in Roseville, Rocklin and Lincoln seem to be revving up again. Multiple offers are being reported. Statistics indicate that the prices in these markets have hit the bottom. When investors show up it is a definite sign of a market poised for an eventual upturn.
I agree with Kris Forster. Buyers and sellers set prices. It’s the Realtor’s job to interpret the market and market trends. Understanding the forces that drive the market is a matter of good Home $$s and Sense.
Wednesday, April 9, 2008
Worried Pre-retirees
Dear Sue,
My husband and I are in our fifties and looking forward to a nice retirement. Our plan was to retire on the equity that we have built up for the last 25 years.
We have updated the entire house using our equity line. We remodeled the kitchen and replaced all of the major appliances. We did what we thought we needed to do in order to make our home more marketable. The market was not the same when we were finished!
The home prices in our area have really gone down. We really need the money from our home in order to retire. I know that you said in one of your columns that one should never rely solely on home equity for retirement and to never refinance for any reason other than to lower one’s interest rate.
We live from pay day to pay day. We don’t have 401 Ks or IRA’s. We just have a modest savings account and the equity in our home. (what’s left of it). PLEASE Help us understand what we have to do now.
Worried Pre retirees
Dear worried,
You are still young! Fifty is the new forty.
Many boomers are facing the same retirement worries as you are. They will need to be creative and design a new retirement model.
In your case continue to take care of your home because it will take care of you. The current real estate market is temporary. Home appreciation will return. It will happen before you know it.
In the mean time create a plan. Part of your plan may include working a little longer than you had anticipated. You can plan on living a longer healthier life than previous retirees.
You say that you live from payday to payday. I would suggest creating a budget that includes maximizing IRA contributions. If you don’t have an IRA account it’s never too late to start one. Get going!
If you have never lived on or created a budget before, get some books on the subject or seek the advice of a reputable financial advisor. The big question you will need to ask yourself is how do you want to live when you retire? What do you want your life to look like? Your answers will determine how much money you will need.
You indicated that you had a savings account. Is it enough to purchase an income property? Purchasing an income property can benefit you in several ways. First, you can protect some of your income through various write offs including depreciation. Secondly, you can enjoy cash-flow from rents. Tenants also help to pay the mortgage debt if any, taxes, insurance and other expenses associated with ownership. Finally, the property serves as a growing asset through appreciation.
Historically, California real estate doubles every ten years. An investment property or two can greatly enhance ones retirement plan.
If saving or buying, investment property isn’t possible, consider moving to an area that has a lower cost of living. Friends of mine have actually moved out of the country, in order to live out their retirement dreams.
In any case, start your plan now! It is a matter of good Home $$s and Sense.
My husband and I are in our fifties and looking forward to a nice retirement. Our plan was to retire on the equity that we have built up for the last 25 years.
We have updated the entire house using our equity line. We remodeled the kitchen and replaced all of the major appliances. We did what we thought we needed to do in order to make our home more marketable. The market was not the same when we were finished!
The home prices in our area have really gone down. We really need the money from our home in order to retire. I know that you said in one of your columns that one should never rely solely on home equity for retirement and to never refinance for any reason other than to lower one’s interest rate.
We live from pay day to pay day. We don’t have 401 Ks or IRA’s. We just have a modest savings account and the equity in our home. (what’s left of it). PLEASE Help us understand what we have to do now.
Worried Pre retirees
Dear worried,
You are still young! Fifty is the new forty.
Many boomers are facing the same retirement worries as you are. They will need to be creative and design a new retirement model.
In your case continue to take care of your home because it will take care of you. The current real estate market is temporary. Home appreciation will return. It will happen before you know it.
In the mean time create a plan. Part of your plan may include working a little longer than you had anticipated. You can plan on living a longer healthier life than previous retirees.
You say that you live from payday to payday. I would suggest creating a budget that includes maximizing IRA contributions. If you don’t have an IRA account it’s never too late to start one. Get going!
If you have never lived on or created a budget before, get some books on the subject or seek the advice of a reputable financial advisor. The big question you will need to ask yourself is how do you want to live when you retire? What do you want your life to look like? Your answers will determine how much money you will need.
You indicated that you had a savings account. Is it enough to purchase an income property? Purchasing an income property can benefit you in several ways. First, you can protect some of your income through various write offs including depreciation. Secondly, you can enjoy cash-flow from rents. Tenants also help to pay the mortgage debt if any, taxes, insurance and other expenses associated with ownership. Finally, the property serves as a growing asset through appreciation.
Historically, California real estate doubles every ten years. An investment property or two can greatly enhance ones retirement plan.
If saving or buying, investment property isn’t possible, consider moving to an area that has a lower cost of living. Friends of mine have actually moved out of the country, in order to live out their retirement dreams.
In any case, start your plan now! It is a matter of good Home $$s and Sense.
Wednesday, April 2, 2008
Some Good News!
Right before the market changed, I bought a new home in a subdivision. My plan was to make some money when I flipped it. Of course I paid top dollar because I bought it at the highest point in the market.
The market started its downward spiral the day I closed escrow. I have been doing what I can to hold on to it but I can’t afford to keep it any longer. I plan to let it go back in foreclosure. My real estate agent said that I may be taxed on any debt that is written off in a foreclosure.
I heard that Congress passed a debt forgiveness act. Would this apply to me?
Poor Investor
Dear Investor,
Yes it is true that congress passed legislation that became effective January 1, 2008. Homeowners will not be required to pay taxes on mortgage debt written off or forgiven as part of a bankruptcy, short sale, foreclosure, or renegotiation that involves the homeowners “principal” residence.
Under the Mortgage Forgiveness Debt Relief Act of 2007, up to $2 million of indebtedness is shielded from taxes if the debt is the result of construction, acquisition or major improvement of the principal residence. The act applies to debt discharges from January 1, 2007 through December 31, 2009.
Since you purchased a home as an investment, you may not be exempt from paying taxes on the debt written off in foreclosure. I recommend that you talk to a reputable tax professional before letting your property go into foreclosure.
Dear Sue,
My kids want to buy a home. They don’t have a lot of cash but they have great credit. I suggested that they talk to a lender and get pre-qualified before they start looking. In light of the current high down payment requirements brought on by the sub prime crisis, do you think that FHA may be a viable financing option?
Caring Dad
Dear Dad,
I think that talking to a lender is a great first step. Your idea to check out FHA financing options is also very smart. FHA not only has low down payment requirements, it has temporarily increased the loan limits. The new FHA loan limits are now available on-line. Go to www.car.org. Enter the county you wish to buy in.
You will find that the single Family loan limit is now $580,000 in Placer county. The two-family home limit is $742,000. The three - Family home limit is $897,500. The four-Family home limit is $1,115,400. Many people don’t think about buying a duplex or 4 – plex and living in one of the units. FHA financing makes this possible. It’s also a great way to get started.
Knowing the new tax laws and available financing options can be a matter of good Home $$s and Sense.
The market started its downward spiral the day I closed escrow. I have been doing what I can to hold on to it but I can’t afford to keep it any longer. I plan to let it go back in foreclosure. My real estate agent said that I may be taxed on any debt that is written off in a foreclosure.
I heard that Congress passed a debt forgiveness act. Would this apply to me?
Poor Investor
Dear Investor,
Yes it is true that congress passed legislation that became effective January 1, 2008. Homeowners will not be required to pay taxes on mortgage debt written off or forgiven as part of a bankruptcy, short sale, foreclosure, or renegotiation that involves the homeowners “principal” residence.
Under the Mortgage Forgiveness Debt Relief Act of 2007, up to $2 million of indebtedness is shielded from taxes if the debt is the result of construction, acquisition or major improvement of the principal residence. The act applies to debt discharges from January 1, 2007 through December 31, 2009.
Since you purchased a home as an investment, you may not be exempt from paying taxes on the debt written off in foreclosure. I recommend that you talk to a reputable tax professional before letting your property go into foreclosure.
Dear Sue,
My kids want to buy a home. They don’t have a lot of cash but they have great credit. I suggested that they talk to a lender and get pre-qualified before they start looking. In light of the current high down payment requirements brought on by the sub prime crisis, do you think that FHA may be a viable financing option?
Caring Dad
Dear Dad,
I think that talking to a lender is a great first step. Your idea to check out FHA financing options is also very smart. FHA not only has low down payment requirements, it has temporarily increased the loan limits. The new FHA loan limits are now available on-line. Go to www.car.org. Enter the county you wish to buy in.
You will find that the single Family loan limit is now $580,000 in Placer county. The two-family home limit is $742,000. The three - Family home limit is $897,500. The four-Family home limit is $1,115,400. Many people don’t think about buying a duplex or 4 – plex and living in one of the units. FHA financing makes this possible. It’s also a great way to get started.
Knowing the new tax laws and available financing options can be a matter of good Home $$s and Sense.
Wednesday, March 26, 2008
Consider Renting While Your Home is Listed
Dear Sue,
It looks like the market is starting to rebound. I have read recent stories about multiple offers on bank owned homes. I also heard that February home sales were up!
I want to buy a new home while the prices are still down but I want to let prices rise a little before I sell my current home.
What do you think of me buying a new home, moving into it and then renting my old house out while it’s on the market?
What are the things that I need to consider?
Landlord Larry
Dear Larry,
Renting is generally better than leaving your home vacant. Rental income can off set your expenses and a home that is lived in is less likely to be vandalized.
Becoming a landlord is serious business. If you don’t have landlord experience, I recommend paying for the services of a reputable property management company.
Property managers may be an additional expense but they are set up to do thorough tenant screening and selection. Good tenant selection is vital. A bad tenant can be costly and throw a huge monkey wrench into your plan.
Your property manager can select a tenant that understands that your home is for sale. A free month’s rent or below market rent is an often used incentive for a cooperative tenant.
Property managers also have an array of cleaners, painters, plumbers, electricians and general all around property maintenance personnel. Let them handle the early morning “Fix-it” calls.
Insurance is a consideration. You, the landlord will have a significantly lower premium because you will not be insuring the contents. The tenant should be required to have their own insurance policy with extended liability coverage. Some insurance companies will not fully insure a vacant home. In any case check it out with your insurance agent.
If your home takes longer than three years to sell, you may lose your $500,000 capital gains tax exclusion. To qualify, you must live in your personal residence two out of the last five years. If you get close to losing your exemption, you might want to cut your price and bail. Your accountant can help you with that decision.
If you decide that renting is not for you, consider professional staging and pricing your home for current market conditions. It will be a matter of good Home $$s and Sense.
It looks like the market is starting to rebound. I have read recent stories about multiple offers on bank owned homes. I also heard that February home sales were up!
I want to buy a new home while the prices are still down but I want to let prices rise a little before I sell my current home.
What do you think of me buying a new home, moving into it and then renting my old house out while it’s on the market?
What are the things that I need to consider?
Landlord Larry
Dear Larry,
Renting is generally better than leaving your home vacant. Rental income can off set your expenses and a home that is lived in is less likely to be vandalized.
Becoming a landlord is serious business. If you don’t have landlord experience, I recommend paying for the services of a reputable property management company.
Property managers may be an additional expense but they are set up to do thorough tenant screening and selection. Good tenant selection is vital. A bad tenant can be costly and throw a huge monkey wrench into your plan.
Your property manager can select a tenant that understands that your home is for sale. A free month’s rent or below market rent is an often used incentive for a cooperative tenant.
Property managers also have an array of cleaners, painters, plumbers, electricians and general all around property maintenance personnel. Let them handle the early morning “Fix-it” calls.
Insurance is a consideration. You, the landlord will have a significantly lower premium because you will not be insuring the contents. The tenant should be required to have their own insurance policy with extended liability coverage. Some insurance companies will not fully insure a vacant home. In any case check it out with your insurance agent.
If your home takes longer than three years to sell, you may lose your $500,000 capital gains tax exclusion. To qualify, you must live in your personal residence two out of the last five years. If you get close to losing your exemption, you might want to cut your price and bail. Your accountant can help you with that decision.
If you decide that renting is not for you, consider professional staging and pricing your home for current market conditions. It will be a matter of good Home $$s and Sense.
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