Q. This summer I plan to sell my second home. The profit should be around $40,000. If I buy a nicer second home, can I avoid tax, just as I did last year when I sold my primary residence and bought a more expensive home?
A. No. Sorry, the ``rollover residence replacement rule'' of Internal Revenue Code 1034 does not apply to tax deferral for the sale and replacement of your second home. Please consult your tax adviser for more details.
Q. For the last three years my husband and I have managed a small apartment building where we get a free apartment. At first our goal was to save toward a home down payment what we would have paid for rent. We have saved almost $30,000. But we enjoy managing the apartment building, get along great with the landlord and tenants and would hate to move. Do you think we should move anyway?
A. No. However, it would be a very smart investment to buy a house and rent it to tenants. Someday you will decide to move out of that desirable rental situation. Then you will have a home where you can move. In the meantime, you can enjoy the tax benefits and probably rising market value.
Although most people don't want to do it, the smartest thing you can do is rent the residence where you live and own a rental property where you might like to move someday if the rental comes to an end.
Q. Last year I got married. I knew my husband had poor credit, but I didn't realize how bad it was. We want to buy a home, so we went to a local S&L which advertises it will prequalify borrowers. The loan officer was very kind, but she told us there is no way any lender could approve us for a home loan. Is there any way we can buy a home with bad credit?
A. Of course you can buy a home. You'll just have to avoid getting a new mortgage from an institutional lender. One choice is to assume an existing assumable mortgage, such as an older VA or FHA mortgage. The seller can then take back a second mortgage, if needed.
Another alternative is to buy a home where the seller will carry back a first mortgage. Retirees are often especially interested in financing the sale of their home, since a carryback mortgage gives them extra retirement income at a higher interest rate than can be earned elsewhere with safety. Don't give up. Even with bad credit, one way or another you can buy a home.
Q. A few months ago my wife and I bought a six-unit apartment building. Our first vacancy will be coming up next month. We are discussing whether to offer the new tenant a one-year lease, or if we should go month-to-month. Which is best for us?
A. Many tenants prefer one-year leases because the rent cannot be raised during the term of the lease. Most landlords think a one-year lease protects them from the tenant moving out during the year. However, experienced landlords know a tenant who wants to move is going to move whether or not there is a lease in effect.
Personally, I don't care if the tenant wants a one-year lease or a
month-to-month rental. I let the tenant decide. Most select the one-year lease, but after the lease expires, then my lease terms automatically convert into a month-to-month rental agreement. Please consult a real estate attorney for further details.
(Copyright 1990, Tribune Media Services Inc.)
Bob Bruss' column appears Sundays in the Home/Real Estate section of The Times. Letters and comments should be sent to Bob Bruss, Seattle Times Newsroom, P.O. Box 70, Seattle, WA 98111. |
