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Condos, Apartments & Single-Family Homes - Q & A


Q: How do you choose between condos and single-family homes?

A: Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single-family homes in the last five years. And in some markets, condos appreciated even more, according to some experts.

While single-family homes have been the preferred investment by home buyers, changing demographics are helping make condos more popular, especially among single home buyers, empty nesters and first-time buyers in high- priced markets.

Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation.

Q: Are condominiums risky to buy?

A: While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong.

As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).

The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.

Other resources:

  • Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600.
  • "The Condominium Bluebook," Branden E. Bickel, B&B Publications, San Francisco, CA; 1993.

Q: What do you think of a vacation home as an investment?

A: You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.

Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.

Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year.

You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.

Q: What do you think of get-rich-quick real estate schemes?

A: Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate.

Some are reputable while others depend on your financial circumstances to work. A handful are simply scams.

Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly.

Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.

Q: Do condos have to be made accessible to the disabled?

A: The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping mall) must be accessible. New multi-family construction also falls into this category.

In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.

Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment and Housing by calling (800) 884-1684.

Q: Can condos ban smoking?

A: A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws (i.e. if a city banned smoking outdoors, a homeowners association probably could restrict smoking in its outdoor spaces).

Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves.

Resources:

  • Common-interest development brochure available free from California Department of Real Estate, Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916) 227-0938.
  • Various Internet sites specializing in common-interest developments, such as those operated by the Community Associations Institute and CIDNetworks.

Q: Are condos a good investment?

A: Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the last few years than when they first came on the scene in the late 1970s and early 1980s, experts say.

While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.

Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.

Q: How do I project rents on a rental?

A: If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.

Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.

Q: Are one-bedroom condominiums a good investment?

A: One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos.

Q: How do I figure out the homeowners association?

A: Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.

When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.

Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association's covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board.

Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.

Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you.

Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.

Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.

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Fixer-Uppers - Q & A


Q: Where are fixer-uppers found?

A: You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.

Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.

Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.

The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.

Q: What kind of return is there on remodeling jobs?

A: Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

Q: Are there gov't programs for rehab?

A: The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.

Another program is the Federal Housing Administration's Title 1 FHA loan program.

Resources:

  • "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.

Q: How do building codes work?

A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Resources:

  • "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: What are some resources for info on home improvements?

A: If you're getting ready to embark on a home improvement project involving contracting help, "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.

The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.

Resources:

  • Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley & Sons Inc., New York; 1992.
  • Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (202) 736-3447 to order a copy.

Q: Are there any special tax breaks for historic rehab?

A: Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.

The tax code does not allow deductions for the demolition or significant alternation of a historic structure.

Resources:

  • National Trust for Historic Preservation, Washington, D.C.; (202) 588-6000.

Q: Are fixers a good idea in bad areas?

A: Distressed properties or fixer-uppers are everywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.

Many experts recommend that buyers find the least desirable house in the best neighborhood and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's budget. Most experts say inexperienced buyers should avoid run-down houses that need major structural repairs and instead look for properties that only require cosmetic fixes.

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Foreclosures - Q & A


Q: How does a home go into foreclosure?

A: Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale.

Q: Are foreclosures an option?

A: A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.

Q: What are problems with buying foreclosures?

A: Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware").

The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property's condition is not well known and an interior inspection of the property may not be possible before the sale, says Wiedemer.

In addition, only estate (probate) and foreclosure sales are exempt from some states' disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

Q: What types of foreclosure are there?

A: Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lien holder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.

Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

Q: What happens at a trustee sale?

A: Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice.

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

Q: How do you get financing for a foreclosure?

A: One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks.

Q: How do you find government-repossessed homes?

A: The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.

You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent.

One caution. HUD homes are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied.

Q: Can I get a HUD home for as little as $100 down?

A: If you are strapped for cash and looking for a bargain, you may be able to buy a foreclosure property acquired by the U.S. Department of Housing and Urban Development for as little as $100 down.

With HUD foreclosures, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-insured, the down payment can go much lower.

Each offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500.

The U.S. Department of Veterans Affairs also offers foreclosure properties which can be purchased directly from the VA often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults.

If you are interested in purchasing a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.

You should be aware that foreclosure properties are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied.

Q: Where can you find foreclosures?

A: In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place.

When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount.

Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.

Resources:

  • "The Smart Money Guide to Bargain Homes, How to Find and Buy Foreclosures," James I. Wiedemer, Dearborn Financial Publishing, Chicago; 1994.
  • "Real Estate Principles," Charles O. Stapleton III, Thomas Moran and Martha R. Williams, Dearborn Financial Publishing, Chicago; 1994.
  • "Real Estate Investing From A to Z," William H. Pivar, Probus Publishing, Chicago, 1993.

Q: Where can you find foreclosed HUD homes?

A: The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.

You can only buy HUD-owned properties through a licensed real estate broker, whose commission will be paid by HUD.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range 5 to 20 percent. When the property is FHA-insured, the down payment can go much lower. Each accepted offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price not to exceed $2,000, but not less than $500.

You should be aware that HUD homes are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied.

Q: Do you have to buy HUD homes through a realty agent?

A: You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

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Income taxes - Q & A


Q: Where do I get information on IRS publications?

A: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:

  • 521 "Moving Expenses"
  • 523 "Selling Your Home"
  • 527 "Residential Rental Property"
  • 534 "Depreciation"
  • 541 "Tax Information on Partnerships"
  • 551 "Basis of Assets"
  • 555 "Federal Tax Information on Community Property"
  • 561 "Determining the Value of Donated Property"
  • 590 "Individual Retirement Arrangements"
  • 908 "Bankruptcy and Other Debt Cancellation"
  • 936 "Home Mortgage Interest Deduction"

Order by calling 1-800-TAX-FORM.

Q: How do I reach the IRS?

A: To reach the Internal Revenue Service, call (800) TAX-1040.

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Lease Options - Q & A


Q: What is a lease option?

A: When a renter signs a lease with an option to purchase the property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment.

Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs.

Q: How do lease options work and what are the benefits?

A: Most lease-option agreements specify that a portion of the rent on the property in question is applied toward the purchase if the option is exercised. This is referred to as rent credit. Institutional lenders accept rent credits as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application.

For sellers, lease options give them several advantages, especially in a slow market. These include a monthly rent higher than market rent, top-market value for the property and tax-free use of the option consideration until the option expires or is exercised. Also, the renter is more likely to treat the property like an owner, tax-free use of option consideration until the option expires or is exercised.

Lease-options should be read carefully for details on transferring the option and other important concerns.

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Property Management - Q & A


Q: Where can I get information on writing leases?

A: Landlords can turn to several good books for legal and management advice. Some contain sample forms for the tenant's move-in condition checklist, owner's notice of intent to enter an occupied unit and warning notices, for example.

Resources:

  • "The Landlord's Troubleshooter," Robert Irwin, Dearborn Financial Publishing, Chicago; 1994.
  • "The Landlord's Law Book: Rights & Responsibilities," David Brown and Ralph Warner, Nolo Press, Berkeley, Calif.; 1991.

Q: Where do I get information about being a landlord?

A: If you are a landlord and have questions, contact:

  • National Multi-Housing Council, 1850 M Street, N.W., Washington, DC 20036; call (202) 659-3381.
  • National Apartment Association, 21 N. Union St., Suite 200, Alexandria, VA 22314; (703) 518-6141.

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Property taxes - Q & A


Q: How do property taxes work?

A: Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

Q: Are property taxes deductible?

A: Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

Q: Where can I learn more about appealing my property taxes?

A: Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal processes, which begin with an appeal filed with the appropriate assessment appeals board.

Q: How is a home's value determined?

A: You have several ways to determine the value of a home.

An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house.

A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business.

You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.

Q: Are taxes on second homes deductible?

A: Interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

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Real Estate Value - Q & A


Q: What is the difference between market value and appraised value?

A: Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 to $300.

Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Q: How do you find out the value of a troubled property?

A: Buyers considering a foreclosure property should obtain as much information as possible from the lender about the range of bids being sought.

It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition.

It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.

Q: How do you increase the value of your property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing.

Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s. However, single-family homes appreciated much more than condominiums. While overall market conditions are out of the homeowner's control, other factors are not.

For example, specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent.

Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

If you live in a high-crime area, an organized community watch program not only will lower the crime rate but also have been known to enhance property values.

Q: What are the standard ways of finding out what a house is valued at?

A: A comparative market analysis and an appraisal are the standard ways consumers, lenders and realty agents determined what a home is worth.

Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. You also can research "the comps" yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location.

This information is not only available at your local recorder's or assessor's office but also through private companies and on the Internet.

An appraisal, which generally cost $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.

Q: Can you buy homes below market?

A: While a typical buyer may look at five to 10 homes before making an offer, an investor who make bargain buys usually go through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:

  • Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
  • Buy a foreclosure property (after doing your research carefully).
  • Buy a house due to be torn down and move it to a new lot.
  • Buy a partial interest in a piece of real estate, such as part of a tenants-in-common partnership.
  • Buy a leftover house in a new-home development.

Q: How can I improve the value of my property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing. Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s.

Specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent. Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

The safety and security of a neighborhood can affect property values, too. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but give home values a boost, too.

Q: What kind of return is there on remodeling jobs?

A: Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

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Seller Financing - Q & A


Q: What are the benefits of seller financing?

A: Seller financing offers benefits to both buyers and sellers including tax breaks for the seller as well as offering an alternative when conventional loans can't be found.

The risks involved are the same risks facing any lender. Is the borrower a good credit risk? Will the property hold enough value over time to allow for the repayment of all loans made against it?

Sellers should run a full credit check on the borrower, require hazard insurance on the property and include a due-on-sale clause. There also are financing, disclosure and repayment-term requirements that should be met.

Q: How are the rates set for seller financing?

A: The interest rate on an owner-carry loan is negotiable. Ask your agent to check with a lender or mortgage broker to determine the current rate on institutional first (or second) loans.

Seller financing typically costs less than conventional financing because loan fees (points) typically aren't charged. The interest rate on a seller-carry loan will also be influenced by current Treasury bill and certificate of deposit rates. Sellers usually aren't willing to carry a loan for a lower return than they would earn if their money was invested elsewhere.

Q: What is seller financing?

A: Homeowners who are anxious to sell often consider seller financing, which may include taking back a second note or even financing the entire purchase if the seller owns the home free and clear.

Seller financing differs from a traditional loan because the seller does not give the buyer cash to complete the purchase. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller's favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property.

The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller.

It is critical to thoroughly evaluate the creditworthiness of the buyer first. Fear of default makes many sellers reluctant to take back a second. But seller financing can bring a higher price plus complete the sale sooner in some situations.

Resources:

  • IRS Publication 537, "Installment Sales." Order by calling (800) TAX-FORM.

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Whom to Contact (How to Invest) - Q & A


Q: Where do I get information about being a landlord?

A: If you are a landlord and have questions, contact:

  • National Multi-Housing Council, 1850 M Street, N.W., Washington, DC 20036; call (202) 659-3381.
  • National Apartment Association, 21 N. Union St., Suite 200, Alexandria, VA 22314; (703) 518-6141.

Q: Where do I get information about finding a real estate attorney?

A: To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience.

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Whom to Contact (Investing, Tax Considerations) - Q & A


Q: Where do I get information on IRS publications?

A: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:

  • 521 "Moving Expenses"
  • 523 "Selling Your Home"
  • 527 "Residential Rental Property"
  • 534 "Depreciation"
  • 541 "Tax Information on Partnerships"
  • 551 "Basis of Assets"
  • 555 "Federal Tax Information on Community Property"
  • 561 "Determining the Value of Donated Property"
  • 590 "Individual Retirement Arrangements"
  • 908 "Bankruptcy and Other Debt Cancellation"
  • 936 "Home Mortgage Interest Deduction"

Order by calling 1-800-TAX-FORM.

Q: How do I reach the IRS?

A: To reach the Internal Revenue Service, call (800) TAX-1040.

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Whom to Contact (What to Invest in) - Q & A


Q: Where do I get information on homes with historic value?

A: For information about homes with historic value, contact the National Trust for Historic Preservation, Washington, D.C. at (202) 673-4000.

Q: Where do I get information on REITS?

A: Ask for information on real estate investment trusts, or REITs, from the National Association of Real Estate Investment Trusts, 1129 20th St., N.W., Washington, DC 20036; (202) 785-8717.

Q: Where do I learn about HUD foreclosures?

A: One good source is their Web page http://www.hud.gov

Q: Where do I find about IRS properties?

A: Go the IRS property site at http://www.treas.gov/auctions/irs/

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This Q&A Section is Copyright © 1999 Inman News Features