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Question: I have two rental properties, both purchased in 2003. One valued at $375,000 with a loan balance of $153,000, the other valued at $350,000 with a loan balance of $146,000. If I sell, I would just bank the money and when the housing market crashes, I"ll pay cash for a retirement house. My principal home is valued $800,000 with a loan balance of $173,000. I will sell this home when I retire in about five years.
Answer: It"s great to have choices. At this moment you have more than $1 million in real estate equity. If you believe the housing market will crash, does it not makes sense to sell all three properties -- not just two -- so you have no losses should a bubble emerge? If you believe there will be a bubble then why keep your largest asset, the one likely to be devalued most?
But will the housing market crash? No one knows. For several years there have been predictions of a real estate decline but so far such prophecies have been largely incorrect.
The basic rule in real estate -- and the basic rule with all investing -- is that there is risk in the marketplace. If you sell believing there will be a crash, someone else will buy believing that values will increase.
Rather than sell both investment properties, perhaps hedge your bet and consider selling one -- and then pay off the mortgage on the other. That way you will at least have a property which provides a positive cashflow whether prices rise or fall.
Question: I currently have the #1 back-up offer for an income property sale. The first buyer was given a 72-hour contingency which was changed through an addendum to 21 days. When the 21 days expired I was told they had an additional 72 hours. When the 72 hours expired I was told the owners were in Europe and could not be reached to sign a cancellation letter and that the owners gave them until the end of this month because they were going to be out of country.
I have not been given a copy of the addendum so I do not know what it says. I was told that once the seller signed my offer and accepted me as back-up that the addendum/contingency on the first contract could not be changed. How can I get more info on the first offer?
Answer: How do you know you are the first back-up? Are there other buyers waiting to acquire this property?
The other offer is a private matter between the buyer and the seller. What counts for you is what your offer says and how it was accepted. For instance, do you have the right to withdraw your offer at any time prior to acceptance or have you agreed to keep it open for a certain period? Does the seller have the right to accept other back-up offers? If the seller gets a better offer can your offer be bumped down?
Please contact a local real estate attorney and have both your offer and the acceptance carefully reviewed. It may be that you will be best served by looking elsewhere.
Question: We bought 6.5 acres of land. Two acres are farmed by a local farmer for the hay on it. We were told we will get a tax break if the farmer signs a letter to verify that he is farming for hay. What about the other 4.5 acres which is all trees and forestry. Can we get a tax break there too?
Answer: The idea of a tax break for land used in farming is to preserve open spaces and promote agriculture. Is the remaining 4.5 acres used for any agricultural purpose? For instance, is it a tree farm?
Speak with the local county agent from the Agriculture Department and see how the land can be used. If there is a legitimate farm use, and if the land is used for that purpose, then you should be entitled to a break.
Question: We lived in our first home for 15 years and did not pay capital gains taxes when we sold. We have a new home and have been in it for two and a half years. We plan to put it on the market in about a year. Since we took the capitol gains write-off before, can we use it again? Will we have to pay capital gains?
Answer: No. You will have lived in the current home for two of the past five years so you will not face a capital gains tax on as much as $500,000 in profits if married, $250,000 if single. You may take the capital gains write-off more than once. For details see IRS Publication 523 Selling Your Home and speak with a tax professional.
Question: My father purchased land and built a vacation home in 1977, spending $100,000 in total. We"re in the process of selling the property for $955,500. How can we reduce or avoid capital gains on $855,500? This was a vacation home, so he did not live there two out of the past five years.
Answer: By any chance did you obtain title to this property because of an estate situation? If yes, you acquired the property at its "stepped up" value, not the cost to your father. For instance, if the value at the time you received title was $800,000 then only $55,500 -- less costs for marketing, closing, etc. -- would be subject to capital gains. For specifics, speak with a tax professional.
Question: The deed to my house (my mortgage was paid up in 1975) has a clause that says the previous owner (circa 1903) held the property "Under and Subject to Yearly Ground Rent of $120.00."
Later it says that the seller to the previous buyer "released and forever extinguished said Yearly Ground Rent of $120 to the previous buyer." What is the current status of that clause? I was told that I purchased not only the house but the land that it sits on. How can I verify this?
Answer: The existence of ground rent means that the home was built on a ground lease (land lease). That lease is like the lease on an apartment -- when it expires the land owner gets the property back.
To find the status of your home, check the closing papers from when the home was purchased. Was there title insurance? If yes, contact the title insurance company -- they will know the exact status of the property. If you did not get title insurance, then have a local real estate attorney or title company conduct a title search to determine if a land lease still exists.
It"s just a guess, but the betting here is that the original land lease allowed the homeowner to buy back the land under the home. Why? Because you were able to get a mortgage and most lenders will not lend if they cannot get a lien secured both by the land and its "improvements" (the house).
Question: How much do people in real estate earn?
Answer: Results vary widely. To start, a small number of brokers and agents do a disproportionate percentage of all transactions -- and thus earn a disproportionate percentage of all income. Also, where you live makes a big difference. Selling two typical homes in San Francisco or Washington, D.C. will produce vastly more income than the sale of two homes in a rural community. Of course, the cost to be in business in a major metro area is also higher than one would find in a smaller location.
According to the 2005 member profile produced by the National Association of Realtors, broker-owners had median incomes of $89,100 while a typical sales associate earned $38,300. However, more experienced associates, those with six to ten years of experience, earned $57,100. NAR has 1.1 million members.
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