Ask Realty Times - September 2, 2005 - 9/2/2005 - Multifamily Landlord Tenant Commercial Buildings

Ask Realty Times - September 2, 2005

by Peter G. Miller

Answer: Both you and the property owner must honor the lease, unless you mutually agree to do otherwise.

What's really happened is this: The landlord has placed the property on the market "subject to" the lease. This means any new owner must continue the terms of your current rental agreement -- and so must you.

Question: I just got into real estate and everyone I speak with says the same thing -- create "your" circle of influence. Well I started this exercise and come to realize that my "immediate" and most "influential" circle is not that big. My question is, what's the best way to build that circle of influence over time? But the real "gotcha" is how do I build one in the next three to six months to get my business started?

Answer: To some extent marketing in most fields is a numbers game -- the more people who know about you and the services you offer, the more likely your chance to get business.

As a place to start, you might want to seek floor duty with your brokerage firm, hold open houses with successful salespeople, create a web site and work as an assistant for a leading agent. Also, pick an area where you want to work, learn everything you can about it, and then use direct mail to reach individual households. One of the best things you can do is regularly mail a newsletter, something current, informative and featuring you and your name.

Question: What is your opinion on a purchase for a condo via a land contract? How safe is it for the purchaser?

Answer: A land contract is an installment sale. You do not obtain title to the property until some or all payments have been made. If you miss a payment you could lose all of your equity.

At a time when financing with little or no money down is available, why would you want to buy with a land contract? If you finance a lender will insist on an appraisal and title search, steps which actually protect buyers.

Rules for land contracts vary extensively by state. If for some reason a land contract remains attractive, sign nothing until all documents are first reviewed by a real estate attorney.

Question: We have lived in our home since 1996. We're thinking of renting or selling now. What is the maximum amount of time that we can rent the house without being taxed on our gain?

Answer: To avoid taxes on up to $500,000 in capital gains ($250,000 if single), you must have used the property as a prime residence for two of the past five years. In theory, you could rent the property for three years and still qualify for the prime-residence capital gains write-off.

However, in practice renting for three years is a bad idea. Suppose you rent for three years and it takes three months to sell the property. Whoops. You will not have used the house as a prime residence for two of the past three years.

Reduce your risk and rent for no more than two years. For details, speak with a tax professional.

Question: I'm a buyer with a back-up contract to purchase a home. Is the seller required to tell me when the current contract/contingencies expire?

Answer: A back-up agreement must be written with care. It should indicate, for example, whether you are to be the first back-up or whether someone with a better offer can slip in front of you. In case you find another property, it should also have a provision which allows you to withdraw your offer with notice to the seller.

To determine the seller's obligations you have to review the exact wording of the back-up agreement. You may have a lot of rights, some rights or very few rights.

Question We just a bought a house from an investor who settled a few months earlier. After getting the blueprints from the county, we saw that the fireplace in the family room which is on the left hand side of the wall, should be actually in the middle of the wall instead.

Should we take this issue up with the builder? Is this considered a construction defect? Is this covered under a warranty? Being the second owners of the house, do we have the right to follow up on this?

Answer: When homes are constructed builders reserve the right to modify plans -- indeed, buyers often ask for changes as homes are under construction. This is a routine, normal practice.

As an example, the Builders Association of Eastern Connecticut says that "many builders allow buyers to request changes during construction. Wise buyers and builders make all changes in writing, including detailed descriptions of materials and labor whether added or deleted, schedule extension, and costs."

Also, says the group, a typical new home contract routinely allows "the builder to make changes required by code revisions, site conditions, or other events" outside his or her control.

Was the fireplace hidden from view when you initially saw the property? What about during the walk-through? Is the fireplace inoperable? If the answer to these questions is "no" then what is there to follow-up?

Question: If our home is paid for and we decide to take out a home equity conversion mortgage (HECM -- a reverse mortgage) and we both die, can the person in our will take over that loan or does he have to take out a new loan to pay it off?

Answer: With an HECM/reverse mortgage insured by the Federal Housing Administration (FHA), the loan must be repaid upon your passing. As Fannie Mae explains there are several ways to do this:

"Upon your death, the loan balance, consisting of payments made to you or on your behalf plus accrued interest, becomes due and payable. Your heirs may repay the loan balance by selling the home or by paying off the HECM loan so that they may keep the home. If the loan balance exceeds the value of your property, your heirs will owe no more than the value of the property. FHA insurance will cover any balance due the lender. No additional financial claims may be made against your heirs or estate."

In other words, the reverse mortgage can be repaid by selling or refinancing the property -- but it must be repaid and not continued. This is an important matter, thus before borrowing from anyone you are best served by having both a living will and a will and by speaking with an attorney who specializes in probate matters or elder law.

As always with reverse mortgages, see if less expensive alternative options are available.

Question: I'm a new student in the real estate field. What's the most important information a real estate student should learn while they are studying for their license?

Answer: I suspect there are many answers, depending on who is responding to the question. The view here is that you're best served by learning the basic principles of agency law, mortgage options and the code of ethics found in your state regulations.

Question: I think paying rent is a complete waste, so I would like to purchase something and begin building my equity. I really do not know much about anything when it comes to mortgages, real estate, loans, etc. I'm 23 years old, single, and making a salary of $50,000. I have been thinking of buying a house and then renting it out. Maybe buy a house and have rent-paying roommates. Do you think this is a wise idea?

Answer: You have done enormously well at a young age and you generally have the right idea. However, it's too soon for you to purchase. Before making a huge financial commitment it would pay to know much more about real estate, the marketplace and financing. A good way to start would be to take a basic licensure class -- it would teach you a great deal in a short period and, if you like, you could then be qualified to take the state licensure test.

In addition, begin speaking with brokers, lenders, lawyers, investors and other who you trust. Build up both your cash savings and your information bank.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.