Q:Is it true that there is a relatively new tax law that says any profit made on the sale of a house sold within two years of its purchase date will be taxed 27 percent?
We moved into this house (Roswell) 1.5 years ago and want to leave “yesterday”. We put about 20K in updates and a fourth bedroom (it wouldn’t sell after nine months) and would certainly need to sell at a profit.
A: Nope. The new law says you can take the first $250,000 ($500K if you’re married) tax free if you’ve lived there 24 months. So, stay another 6 months — the tax break is worth it. If you don’t stay, your profit is taxed as long-term capital gains, at 20%.
Q: I am a stay home mother (domesticologist), but however I do work on the weekends for a local hospital in GA.
I would like to get into buying property for resale and buying property for rental. However, I do not have alot of money to start this project. I have been looking in the paper for rental properties for sale that are already occupied. I would in the long run like to set most of the income aside for retirement age and funding for my 3 small children’s future education. I spend a lot of time in the public schools volunteering, supervising, going on fieldtrips etc.
I know I will never retire from a company, but I want to put something aside for later.
My husband’s income takes care of our household. Although we are putting 6% savings into his 403b and his company matches 3%.
I have always enjoyed Business and I would like an opportunity to get a 4 unit bldg to start.
What should be my first step??
A: If you’d like to get started in real estate, the best thing you can do is to get your salesperson’s license. Classes are relatively inexpensive, and it won’t take long. But getting your salesperson’s license will give you the basic knowledge you need about the home-buying and selling process. I think it’s an excellent way to start your career.
Once you’ve received your license, you should activate it and find a company that will allow you to work part-time to develop your skills. Even if you’re looking mostly for yourself, you’ll be able to watch professional real estate salespeople shop for their clients, negotiate contracts, and follow-up on the details that will help get the deal done.
Finding property for others will help you learn how the local area market works. Once you have an understanding of the true value of properties in the area, you can begin to shop for yourself. And, you may have earned some money from your part-time endeavors to use as a down payment.
Of course, you don’t need a real estate salesperson’s license to buy and sell homes, but I think the coursework is an excellent first step.
Q: I am getting married in March and both of us have homes. We have definitely decided to turn his home into rental property and are considering turning mine into rental property as well. Both are in good locations for rental. The down side is that we need more cash than we have readily available for purchasing a new home for us to live in. Would it be a good idea to refinance my current home and take cash out for a down payment on the new home. I am told that we would need to do this as a investor loan and that the interest would be higher than a regular mortgage by about 1/2 to 3/4 percent. By doing this how would the money taken out of the refinancing by treated for tax purposes.
What other information will you need to help us know what to do in this case.
A: Are you still living in your home? If you are living in your home and it is your personal residence, you may be able to refinance to pull out cash without paying the investor premium, typically a mortgage interest rate that is a half point higher with extra fees. If you are living in your fiance’s home, you may wish to refinance his place to pull out cash before you move.
If you have moved out of your home, and still wish to do a cash-out refinance, you may wish to play around with different types of home loans in order to get the interest rate you’re looking for. For example, you may wish to get a 5-year adjustable rate mortgage, where the interest rate will be fixed for five years and then readjust at that time. The rate this loan carries will be lower than a 30-year fixed rate loan.
Talk to your lender about the different possibilities. You might also wish to check out your credit union, if you belong to one.
Finally, a good book to look is the Millionaire Real Estate Investor and Millionaire Real Estate Landlord series, available through my website, www.amazon.com, or your local bookstore.
Q: Last September my husband and I bought a 1 yr old duplex from the builder. At the time, there was a noticeable soil erosion problem that the builder recognized and said he would fix. It appeared that he did. However, after the first big rain a month or two later, the soil started eroding again. It is still eroding, but not to the point it was when we bought the house.
In January, we had a professional landscaper take a look and give an estimate of the cost to fix– approximately $5,000. His assessment was that the builder/seller did not fix the problem initially. At the time, we asked the builder to warranty his work and he said that it is not an industry standard to warranty landscaping.
Based on the fact that he didn’t fix the problem, I want to go back to him, as he has resources that I do not, to fix based on the assessment of the landscaper. By the way, the builder’s ex-partner was a landscaper. He was just trying to get it fixed for the closing.
I am in the process of sending the builder a letter along with pictures. My question is do I have legal recourse with the seller/builder?
A: As you know from listening to the show, I am not a real estate attorney. Since your question is somewhat complicated, I asked a real estate attorney to comment. Here are his comments:
You may have recourse against the builder. Some states have laws that give a homeowner protections against defective work completed by a builder/developer. You should probably talk to an attorney about your options. In addition you may want to talk to the developer to see if they will correct the problem. As a word of caution, frequently different people in the same trade will have a different solution for the same problem. I have seen various people suggest and attempt to repair problems that in both cases the solutions did not repair the problem.
Q: I have gone through several books including yours and have found nothing that pertains to my situation. We are home owners who got lucky, nine years ago my wife and I bought a house on slightly more than 2 acres and last summer we were able to subdivide and sell 1 acre. We still live in our house on the balance of the property. If I may be so bold as to ask, what do you think our tax implications are? I have asked attorneys/accountants but their answers always sound so tentative. Looking forward to hearing from you.
A: I ran your question by my real estate attorney expert. He says what you’re asking is too vague, which is why the answers you’re getting from attorneys/accountants may sound tentative to you.
I think you need to sit down with all of the numbers and go through them with your CPA to see what is available to you. My best guess is that you can treat the acre like a long-term capital gain and pay 20 percent tax on your profits. But it’s only a guess.
Q: I purchased a home in Georgia on a land contract 1 year and 10 months ago (2/99). I am paying P.I.T.. I have yet to rec. a property tax statement or impound statement from my lender, or any type of accounting of the monies paid, although I have requested it several times. Don’t I need to file this information in my tax returns each year? How can I compel them to supply me with this info? What are the legal issues I should be concerned with?
A: Call or pay a visit to the county assessor’s office and request a copy of your tax bill. They can check to make sure it has been paid by your lender. If not, then you need to take it up with your lender immediately.
It’s very important to make sure that your property taxes are always paid and paid on time so that your house isn’t subject to sale for back taxes. That’s a mess you just don’t want to get into. You could lose your home.
So take it upon yourself to always check up on your lender. No one cares about your house as much as you do.
Q: My wife and I are considering purchasing some raw land for investment purposes. Can you give me any suggestions, things to look for, and whether or not we will be able to write off the interest (tax form 4922 ?).
A: The same things apply for raw land as for any investment/property purchase: Location, location, location and then price. You have to figure out the future use of the property, how much it will cost you to hold it, and when you will sell or build. Typically, I don’t suggest buying raw land unless you intend to build on it within the next 6 months to a year, because things can change. But if it’s simply an investment, then that time line can be extended. But work it out ahead of time, and consider all of the pitfalls (does the land have environmental contamination that would be expensive to remove; flood plain; will a road be built near, on or next-to the property, etc.).
As for writing off the interest, you may do that as well as write off the cost of property taxes and other expenses in maintaining the property. If there is income (like grazing rights), you’d offset the income against the expenses.
Consult with your tax advisor for more details. Good luck!
Q: We are purchasing rental properties in Arizona, and we live out of state. I was told by a real estate lady, that anyone who owns rental property within the state, while living out of the state, is required to have a management company manage the rentals. Do you know if this is true? If you do not know, do you know where I find the correct info out? Thanks for you time.
A: I have no idea is having a local address is a requirement to owning rental property in Arizona. If that’s true, it would make it unique among states. I have never heard of this requirement before.
But don’t just take this real estate agent’s advice. Check it out. Call the Arizona department of Real Estate and ask for a list of rules and requirements of landlords. Also, call the local municipality in which your property would be located and ask for the same thing.
Q: Is there a internet site that I can download a simple renter / landlord ‘s agreement contract? My wife and I rent out our basement room to folks we work with and we always have had good luck with each one but we now feel we need a written contract for our next renter to protect our interests etc. We rent from month to month and have not asked for any deposit up to this point.
A: I don’t know if you can simply download from www.Nolo.com, but I know that they have these kinds of agreements for sale. Nolo is a legal publisher. Also, a local stationary store may have a preprinted rental agreement handy.
Q: My wife and I have a slight dilemma. We have a vacant lot that has recently come under contract (contingent on a couple of things) and we stand to make a good deal of money over the initial investment. I understand a little about the 1031 exchange, identifying up to 3 potential candidate properties within 45 days and choosing 1 or more by 180 days, but I wanted to know something else. At the same time we are looking to buy a new primary residence and I wanted to know if there is any way to use the net proceeds from this land sale towards our new primary residence? Could we buy a lot that we would ultimately build on? Could we buy a house that is under construction? The capital gains on the property would be approximately $20,000, and I don’t really want to lose that kind of money.
Would it be better to look at a second home, kind of a vacation/getaway home or is there a way to use it towards a new primary home?
A: You can’t use the commercial property funds to buy personal property./ That will trigger the tax. You must make it a “like-kind” exchange, so investment property for investment property. Otherwise, you’ll take the tax hit.
Please consult with a real estate attorney who specializes in 1031 exchanges. If you blow one of the deadlines, or fail to meet the rules, you could owe big taxes.
Q: Just wanted to thank you for saving me a lot of money. Last year I heard you on the Clark Howard show here in Atlanta talking about 1031 exchanges for rental property. I found a local intermediary and saved over $10K in taxes. Had a little difficulty when it came tax time, because several tax prepares were not familiar with exchanges. But all worked out.
A: I’m thrilled to have helped you save some serious money. I wish you the best with your investment real estate.
Q: We were thinking of buying a lake lot and some of the properties we were looking at said, “Fee Simple” can you tell me what that means? Also, I know some of the properties are owned by Georgia Power and what I was told is that you don’t really buy them, you lease them, like with a 99 year lease, you own the house and anything you build on the property, but Georgia Power owns the land.
A:Either a property is owned “fee simple” or you’re leasing the land. Two things that are very different.
With fee simple, you own it. With a 99-year land lease, it’s like owning it, except you don’t. You might own the house, but at the end of the lease term, the land and house (unless you moved it) would revert back to Georgia Pacific. Of course, you won’t be living there in 99 years, and it shouldn’t affect you at all, nor the buyers who follow you, but if you’re buying vacation property that you hope to hang onto for generations to come, I’d suggest you own rather than lease, or your grandchildren could find the house being yanked out from beneath them when the lease expires.
Please seek the help and advice of a real estate attorney if you decide to do a 99-year lease.
Q:I want your advice on something. My wife and I have a strong desire to retire in a certain area in about 15 years. We have taken mini-vacations there for the past 8 years and we feel like it is already our second home.
My idea is to purchase a Condo there. We may rent it out 9-10 months or more out of the year for the next fifteen years. Possibly, we would spend both of our mini-vacations in the Unit if we could work that out. But, that is not mandatory to me.
My goal would be to take in enough rental to either break even or maybe even take in a little more then what our annual expenses would run.
What are the plus’s and minus’s in doing something like this? What are the main things to look for? Is this a wise thing to do. We are both 50 years of age by the way.
A: Make the decision based on how good a potential investment this is, not whether you’ll want to live there in 15 years (a long, long time by the way, in which a whole lot can happen to change your mind). If the condo is a good investment and will more than pay for itself either in rental income or in appreciation, then decide if you really want to do it.
If not, then wait until you’re closer to your actual retirement.
Q: We are about 5 years away from retirement and would like some advise. We are considering buying some property in which to build a house on the North Carolina coast. Fortunately, we just paid off our mortgage on our existing home and are relatively debt free. The only debt we have at this time is a $20,000 home equity line that we used to purchase our new car and used the equity line of credit mainly for the tax deduction. Our annual income is about $150k and we are getting killed on taxes. Clark always encourages becoming debt free,
but there is a price come tax time. Is it a good move to purchase a lot or land now for building a home in 5 years. Real estate on the east coast is booming and I don’t know if it is advantageous to buy now or wait. Would we be better off investing the money that we used to pay our mortgage. If we find a lot or property, should we refinance our existing home to finance the purchase of the lot. Both of my boys are in college and we are paying for their expenses out of our monthly salary. We are trying to not dip into the funds we have saved for college if we don’t have to. Any advise would be much appreciated.
A: Congratulations on building such a secure financial life. To be able to pay for college for two boys (I have two boys, too!) and not dip into their college savings is truly remarkable.
I know that you’re taking a hit on taxes. But remember, it’s cash out. If you were getting the deduction, it would mean that you were paying a monthly mortgage payment. While you could refinance your home and pay the boys college tuition with that cash, I think you’re better off not financing college if you can help it. In a few years, you’ll be done!
As for buying land to build on five years down the road, this is kind of tough. Typically, experts say you shouldn’t purchase vacant land unless you intend to build on it within 6 months to a year. The reason is that so many things can change and vacant land can be tough to unload in a hurry.
I’m not saying don’t do it. I’m saying, think about where it might be, and what kinds of buying/selling conditions are in those market areas. Talk to local agents and land owners about their experiences and look back at sales over a 2 to 4 year period. Remember, if we go into a slower economic cycle, that land could be cheaper to buy two years from now, or, if you buy it, that much more difficult to sell.
Just a few thoughts. Thanks for your kind words about the show. I’ll be on a lot next week — with Clark on Thursday, and by myself Friday and Monday. Hope you’ll tune in.
Next Thursday (June 14th, 7pm), I’ll be at the Chapter 11 at Peachtree Battle. I’ll be speaking about my new book, 50 Simple Things You Can Do To Improve Your Personal Finances and taking questions from the audience. Hope to see you there.
Q: My husband and I were given a rental property by his parents about 3 years ago. We have rented to the same couple during that time. They signed a new contract in Jan. to pay rent for another year, but we were shocked to find out on March 1st (the day their March rent was due) that they had moved out. The next day my husband and I inspected the property (a single wide trailor on 2 acres of land) and were devastated to find about $2500-$3000 of damages to the property. We took pictures before beginning any repairs and are now
about 1/2 way through the mess.
Friends and relatives tell us we should just live and learn. My husband and I are thinking of going to court. The rental contract clearly states we should receive notice before a move or the tenants could be liable for rent until we are able to rent the property again. And also there is considerable damage to the property that we would like to hold the renters responsible for. However, the renter was self-employed (a painter), has no checking account that we are aware of (he always paid the rent in cash), and has moved to another county close by. He informed us that he and his wife moved in order to by a house from a friend who is owner financing (he has terrible credit and yet no one ever contacted us for a referral/reference.)
Your advice? If we do go to court, should we hire a lawyer? Also, once we have the property repaired, we are considering selling it. However, we know that banks do not like to give loans on mobile homes. Are we wise to think about owner financing? Where can we go to learn more about this?
A: If they signed a new lease for a year and then skipped out, they obviously owe you for the remaining balance plus any damages. You can sue them yourself in small claims court, or you can hire a real estate attorney to help you chase them. Once they buy their home, you may be able to attach a lien to the property (your attorney can help you with this).
As for financing your mobile home, if it’s permanently attached, more lenders are willing to look at this than you might imagine. Selling, however, may be your best bet. Investigate all of your options first and then add it up with a pencil and paper to see what will be your best deal.
Q:I have a couple of rental properties in Griffin, GA. I live at Lithonia, GA close to Stone Mountain. It is about 45 miles from here, by hwy155 (back road), one way to Griffin. I have to have a job to support me and my primary residence for sure, it always seems.
My tenants do not pay the rent on time ever. When I evict one of them I just replace a bad tenant with another bad tenant. And I loose the money to the one who left plus more money for the time when I am looking for the new tenant.
How can I fix this problem? Is section 8 the answer to it? I tried that too but Mr. Pruitt, who came from Carrollton GA to check the place, told me that my houses have LEAD BASED PAINTS and it is no good for section 8. I put new paneling on all the walls and sheet rock on some rooms, painted the entire house with new paint. I painted entire house, windows and doors but now he says still it is no good I have to put new doors and windows in order to qualify for section 8. Is that correct? In other neighborhoods he is extremely easy.
A: You can check out the rules for Section 8 housing at www.hud.gov. If you feel you are not being treated fairly by this individual, you can contact his superiors at the central Atlanta HUD office, or contact people in Washington.
I’m not sure Section 8 is the way to go however. You may just need help better screening your tenants. Sometimes elderly individuals are better tenants because they pay on time, and usually stay for longer periods. Go to the library and see if you can find any of Robert Irwin’s books on renting property. You might also try looking for Robert Shemin’s “The Millionaire Real Estate Investor.”
Q: My husband is 59 years old and plans to work 6 more years. Our house is valued at $185,000, and we have $100,000 equity. Should we consider purchasing a more expensive house and paying $100,000 down (to keep the payment the same) so that when we retire and sell the house we’ll have more equity? We do not plan to stay in the same area when we retire.
A:I don’t quite follow your logic. If you think a bigger house will appreciate more quickly, than I guess you could do that. But do you need a bigger house? It will cost more to run, more to heat, more to clean, and have larger maintenance costs and real estate property taxes. I think you should aim to prepay your home loan so your home is entirely paid off by the time you retire. Then you can use your equity to purchase the house of your dreams in the area in which you intend to spend your retirement.
Q: I would like to purchase real estate as an investment. I don’t know if that should be a townhouse or condo or home to rent out or perhaps land where I would eventually build and resettle. Any suggestions on where to begin?
A: Vacant land generally makes a poor investment. You’re better off buying a single family home you can fix up and rent, or a condominium.
Check out The millionaire real estate investor (I’ve got it on my website).
Q: I am a young person interested in real estate investing . I just got my Georgia real estate license as real estate agent and, I was thinking on buying a course from Carlton Sheet. I wanted to ask you if his course is as good as he proclaimed it to be. I wanted to know if there is any complaints against him. If my purchasing the course from him is a wise decision?
A: If you put Carlton Sheets name into any search engine, you’ll come up with about a million people who love him and a million people who hate him. I think you shouldn’t spend that kind of money to get good information on owning and managing rental properties. Instead, log onto www.inman.com and find Bob Bruss’ stuff. He personally owns dozens of rental properties and offers various inexpensive brochures on the process. Check out “The Millionaire Real Estate Investor” (on my website) and Bob Irwin’s books on owning and managing rental property.
The best way to learn is to thoroughly understand the process and the numbers. After that, it’s easy.
Q: I own some land in Mississippi along with 6 siblings. We have an interested buyer so we are having the timber appraised as well as the land. The land is about 85% timber. We are not using a real estate agent unless we don’t get a fair price from the perspective buyer. I think that we will need a Real estate closing attorney. We live in Georgia but the property is in Mississippi. What things should we be aware of when we do decide to sell? Thank you for your comments.
A: I would find a real estate attorney who handles timber contracts as well as land sales. There may be environmental issues as well as state or federal issues. Also, you need to divide the money into 6 pieces, and handle details from out of state. Find a very good attorney to handle this for you.
Q: My Mom has been a widow for 2 years. She now lives on Soc. Sec. ($420 per month), rental income ($400 per month) and about $125 monthly from an annuity. A couple of days ago, her tenant of 12 years gave notice that she is moving out. For tax purposes, the rental house is assessed at $36,000; there is no mortgage. The only expenses are the taxes ($600 per year) and periodic maintenance. The house was recently painted, new gutters and a new furnace were installed.
Should my Mom keep the property and find a new tenant (she would raise the rent to $500) or should she sell it and invest the proceeds? Could she get a return anywhere near the $400 to $500 per month rent?
ps: You’re a great Clark Howard replacement!
A: How much is the house worth? Let’s say the house is worth $120,000. She would sell the home, and after expenses probably have about $110,000. Invested at 5% in tax free municipal bonds, she’d clear about $5,000 per year, or about $416.67 per month.
But she’d no longer have to worry about maintenance, etc. and if she needed extra cash, she could sell some of her bonds.
But I don’t know what tax liability there might be. Has she depreciated the property? Is it considered an investment for tax purposes? Did she live there for 2 of the last 5 years?
It may be easier simply for her to rent the house and clear the $500 per month. Please consult a tax advisor for more detailed advice.
Jan. 1, 2004.