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What are the pros, cons of buying house next to ugly neighbor?

Q: My husband and I are first-time homebuyers who need some advice. We've found a nice house in our price range. Our dilemma is that it's next to a not-very-attractive apartment building on a busy street in North Seattle. Would the house be a wise buy or not?

A: Without seeing it, appraiser Mike Munson of Benchmark Appraisal can't give you a specific answer. But in general, he thinks the house has both plusses and minuses. The biggest plus is, "Anything with the word 'Seattle' and the word 'North' in it is going up in value, as opposed to some other areas of Seattle that aren't going up quite as rapidly." Second, having that building next door has kept the price of this house down, which is what's made it affordable to you.

However, from an investment standpoint, Munson says being next to the apartment house presents two big negatives: the value of your home and the marketing time. "Say your typical home sells in 30 days. This one might sell in 60 or 90." And it will sell for less than a comparable home in a solidly single-family neighborhood, he says. How much less depends on the specific neighborhood and the condition of the apartment building.

There are other factors relating to the apartment building to consider. Among them are privacy, noise, traffic and zoning. If there's one multifamily building now, there could be more in the future. This doesn't mean the house is a bad buy, Munson says. However, these are issues to mull over.

Q: Our townhouse development has just six units. Various owners have taken turns managing it, which means they oversee the finances and maintenance, etc. This is not working out well because no one really wants the responsibility. However, there's a lot of resistance to paying for professional management. What's the solution?

A: Mercer Island attorney Kris Sundberg says your dilemma is all too common among condominium owners, particularly those who are former renters and don't know what it's like to own and maintain a home. "People buy a condo and think they're just getting an apartment with a tax deduction," Sundberg said. "They're assuming the landlord is going to take care of everything, except the landlord is them." That's really true unless they're willing to pay for professional management of the common areas, which Sundberg suggests your fellow owners should bite the bullet and do.

"What the membership has implied it wants is for the cost to be borne by volunteer board members — rather than all the owners sharing in that cost equally by paying for management." Not only is that unfair, but it's fiscally unsound, says Sundberg, because "very few homeowners are sufficiently educated in terms of all the things you need to know to manage what in many cases is millions of dollars of real-estate assets. If one of them bought a real-estate investment of equivalent value, would they be trying to run it by themselves or think it a smart business practice to just let it go?" Getting your fellow owners to consider that question may help resolve this impasse.

Q: We own our own home, worth about $250,000, and I just inherited my parents' house, which is worth double that. We want to sell both and retire to the Olympic Peninsula. Will we be taxed excessively on capital gains?

A: Forrest Waters, an enrolled agent who owns Forrest Waters Tax Service in Kent, says that as long as you've personally lived in your house for two years out of the past five, you and your spouse filing jointly can exclude $500,000 worth of its profit. (An enrolled agent is a kind of superaccountant who can argue cases directly to the IRS.)

As your parents' home hasn't been your personal residence, you don't get that same break when you sell it. However, the fact that you inherited it, rather than gaining possession while your parents were alive, works in your favor financially, Waters says. That's because the "basis" on which you calculate taxes is the home's fair market value on the date your parent died. "The higher the basis, the better off you are," he explains.

Let's say, for example, that the fair market value is $500,000. Getting it ready to sell, plus the actual costs of that transaction, cost you $50,000. Your basis is now $550,000. "Now you sell it for $525,000 — that's still a deal because it's more than you had before — and guess what, you've got a $25,000 capital loss." You'll get to write off part of that, potentially saving you taxes, he says.