Q–We’ve owned our home about 11 years. When we bought, our real estate agent told us joint tenancy was the best way to take title so that’s what we did. Now we are doing some estate planning and our attorney says we should put the title into an intervivos living trust.
Why do all the real estate agents advise holding title as joint tenants?
A–Real estate agents should not be advising home buyers how to hold title. But they do. The reason is the agents want to get the sale closed so they pass on the joint tenancy myth.
For most couples, joint tenancy is not a bad idea because title automatically passes to the surviving owner when one dies. However, in many situations it is better for husbands and wives to take title as tenants in common (especially in second marriages with children from a first marriage), separate property, or as tenants by the entireties or community property where allowed by state law.
Holding title in a living trust is an excellent idea. It avoids probate costs and delays, as well as avoiding the need for a conservator if a trustor should become incompetent. Finally, it is private and far more difficult to challenge than is a will.
Your estate planning attorney appears to be giving you good advice.
Q–Last year, we bought a lot in Florida where we plan to build our retirement home in eight years when my husband retires. The developer is urging us to build our house now and is offering price incentives.
But we don’t want to rent out the house and have tenants ruin it. Do you think we should build the house now even though it will be vacant except for our occasional visits?
A–I don’t advise building a house now with plans to keep it vacant the next eight years. Also, your property taxes will be increased after construction. There also are insurance problems with a vacant house.
Now you know why I constantly advise against buying retirement property more than six months before you plan to use it. You’ll be paying property taxes on that vacant lot for the next eight years.
Also, your retirement plans could change substantially due to illness, death, or even divorce.
Q–I would like to invest in run-down houses and fix them up for investment and resale profits. But my wife thinks I should get a real estate license to save half the sales commissions on such purchases. Do you think this is a good idea?
A–No. You may think you’ll “save” half the real estate sales commission as an investor if you have a license. But you’ll find the license is a handicap.
It is much easier negotiating with owners if you can say you are buying as an investor and are not a licensee. Another disadvantage is other agents won’t call you with the property bargains if they know you want half the sales commission.
Unless you plan to represent realty buyers and sellers to earn sales commissions, I suggest you forget about obtaining a real estate sales license.
However, I highly recommend you take the college real estate courses such as principles, finance, appraisal, law, investments and management which you would take to become a real estate agent.
Q–Your readers might enjoy a solution to the “pet problem” I learned at an apartment owner’s association meeting several years ago.
Instead of saying “no pets” the way most apartment landlords do, I advertise, “One pet welcome. $50 extra per month.” I also charge an extra $200 security deposit for a pet.
This helps me get higher than market rent. Also, I’ve had no problem with severe damage. My tenant move-out rate has plummeted to virtually zero, thus reducing my painting and recarpeting expenses.
Yes, there have been a few pet “accidents” in the hallways and elevator but the pet owners quickly clean up with no lingering smells or stains. Why don’t more landlords welcome pets, as it’s very profitable?
A–After reading your profitable hints I’ll bet more landlords will put up “Pets welcome” signs. Thanks for your excellent solution to an old problem most landlords encounter.
Q–I am considering refinancing my 8.5 percent interest rate home mortgage. As I plan to sell my house in about five years, how will refinancing affect my cost basis for calculating profits?
A–Mortgage refinancing has no effect on adjusted cost basis. This is an excellent time to refinance, especially if you can get a so-called “no cost” refinanced mortgage which will lower your interest rate.
When you sell your home, your profit will be the difference between the net adjusted sales price and your adjusted cost basis (usually purchase price plus capital improvements added during ownership). The mortgage is irrelevant.
Q–I sold a property a few years ago and carried back a mortgage for the buyer. That mortgage has a balloon payment coming due this year.
However, the buyer always pays on time and I love the excellent interest income. Is there some way I can extend the mortgage for five years without having to incur the costs and inconvenience of recording a new mortgage and obtaining title insurance?
A–Yes. In most states, all you and the borrower need do is sign a modification agreement and attach it to the promissory note. The same recorded mortgage or deed of trust is security for the modified promissory note.
A local real estate attorney can handle this for you at minimal cost.
Q–We are unable to pay the $23,000 balloon payment on our home’s second mortgage. The lender threatens to foreclose if we don’t pay.
We tried refinancing but we don’t have enough equity. Is there any way we can avoid losing our home equity of about $25,000?
A–Yes. A quick sale before the lender forecloses can salvage your home equity. Be sure to notify the lender when you list the home for sale and ask foreclosure be delayed so you have adequate time to sell.
Not all lenders will cooperate but it’s best to ask. Even if you have to slash the price slightly below market value for a fast sale, that’s better than losing all your home equity by foreclosure.
Q–I recently read a “how to buy a home” book. It said a home buyer doesn’t have to put up any earnest money deposit with a purchase offer. If the buyer and seller sign the sales contract, the book said, that is a binding contract.
But every realty agent I talk with says I must make a deposit of at least $1,000. Is this true?
A–No. That book is correct. However, in the real world only a very desperate seller will sell without a buyer’s earnest money deposit.
A deposit of 1 to 3 percent of the sales price is customary. If you are making a low purchase offer, a large good faith deposit will often impress the seller into accepting your lowball offer.
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The new Robert Bruss special report “1996 Realty Tax Tips-12 Chapters of Tax Saving Ideas” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Chicago, IL 60611. To find out more about the Robert Bruss National Real Estate Newsletter, call 1-800-788-1225.
Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, 435 N. Michigan Ave., Suite 1400, Chicago, Ill. 60611.
