QUESTION: Recently I heard you speak at a seminar. You said one of the best ways to buy a home is to get the seller to carry back the first or second mortgage. But all the homes I've been shown by realty agents require getting a new bank mortgage. How can a buyer find a home that the seller will finance?
ANSWER: Just ask. Over the years I have purchased many homes for investment that the sellers financed for me. I've found sellers are, by far, the cheapest and best mortgage finance source. But I can recall only two of those houses being advertised with "seller financing."
On all the others I had to ask. First, I asked the realty agent why the seller is selling. A few nasty agents replied, "That's none of your business." But I disagree. It is the buyer's business to know why the seller is selling so he/she can make a purchase offer to meet both their needs.
When the agent indicates the home seller is retiring, I get excited because that often means the seller would welcome steady monthly mortgage payments at an interest rate higher than is attainable on a CD or money market account.
Second, when I inspect a vacant house I also get excited. The seller is usually anxious to sell the house and will often listen to a reasonable purchase offer involving seller financing.
Third, even if the realty agent tells me the seller needs an all-cash sale, I still make purchase offers involving seller financing. I am constantly amazed at how many times the seller accepts a written offer with seller financing. Until you make a written offer bid and the seller sees it with the amount of monthly payments to be received, you will never know for sure if the seller will help finance your home purchase on favorable terms.
'Wrong' Spouse Owns Home for Tax Break
Q: My wife and I plan to sell our home. I am 59 and she is 53. We estimate our profit will be about $110,000. But the problem is, we put the house into her name alone about 10 years ago when I had bad heart problems and was expected to die. However, about nine years ago I had a heart bypass operation and have fully recovered. If we put my name back on the deed can we then qualify for that "over 55 rule" $125,000 home sale tax break you often discuss?
A: Not immediately. To qualify for the "over 55" $125,000 tax exemption you must be 55 or older on the day your principal residence is sold, have owned and lived in it at least three of the five years before sale and never have used this tax break before. Only one $125,000 tax exemption is allowed per married couple.
Your problem is that the wrong spouse owns the house. Since your wife is only 53, she must wait two more years before becoming eligible for this tax exemption. Adding your name to the deed won't help either because to qualify, you must have owned and occupied the home at least three years before the sale.
Why It Pays to Hire Professional Help
Q: My husband and I are considering making substantial improvements to our home, including kitchen and bathroom remodeling as well as adding a family room and extra bedroom. We can do this work gradually as we can afford it with my husband and his buddies doing the labor. Or we can get a bank improvement loan and hire a contractor to complete the job in a few months. If my husband and his friends do the work, how much value can we add to our home since we expect to sell it within a few years?
A: If your husband and his friends do the home improvement work, you can only add the cost of purchased materials to the basis for your home. However, if you hire a contractor or other workers, you can add the entire cost you pay to your home's basis.
In other words, the IRS places no value on the labor of your husband and his friends when they improve your home. But the entire cost of hiring professional workers to improve your home can be added to its basis.
Don't Be So Critical, Appraiser Cautions
Q: You shouldn't be so critical of appraisers. We have a tough job to objectively evaluate a property market value. Do you realize the pressure on appraisers? If we don't come up with a high enough value, the property owner isn't happy. But if we determine too high a valuation then the lender criticizes us. You often say professional property managers have a thankless job, but isn't it time you recognize the tough job appraisers have?
A: Yes. Shame on me for not being more understanding of the difficult job real estate appraisers have. However, I am shocked at the incompetence of some of the appraisers I have encountered. Like everything else, we rarely compliment people when they do a great job. But when they do an unsatisfactory job we remember that.
A Good-Faith Test Applies to Contingency