Ask Realty Times - May 26, 2006 - 5/26/2006 - Mortgage Loan Refinance Debt Equity

Ask Realty Times - May 26, 2006

by Peter G. Miller

Answer: Good question.

The assessed value of the property may not reflect it's full market value. For instance, the property may have been last assessed two or three years ago -- in a changing market such data may be outdated.

As to online valuation sites, their results can vary because they use different data and valuation techniques. Given the importance of getting prices right, such valuations are not a substitute for a current valuation from a local appraiser or a market analysis from several real estate brokers.

This brings us to the estimate from the broker. The best way to get a sense of pricing is to speak with more than one broker -- see who makes the best case for a given value and ask how they would market your property.

Question: I just bought a house from a couple that had to move because of a family emergency. I bought the house for $208,000 and it appraised for $235,000. I'm interested in making a quick profit. Are there any rules that would stop me from "flipping" the home? What kind of taxes will I have to pay?

Answer: One rule to be aware of concerns FHA financing. In general terms, you cannot get an FHA loan if a home has been re-sold within 90 days. Between 91 days and 1 year HUD may require a second appraisal and additional verifications. See a lender for details -- and ask about other financing options.

If you have a sale profit you can expect to pay taxes. However, if you hold the property for at least one year you can qualify for lower capital gains rates. A tax pro can tell you more.

Question: If I'm married and sold my home, will I have to pay a capital gains tax? I lived in the home as my primary residence for the last eight years. The home originally cost $280,000 plus we paid $25,000 for a pool upgrade. I sold the home for $665,000.

Answer: Let's assume that you and your wife have lived in the property for two of the past five years and have not sought to write-off another primary residence within the past two years. That should mean you can shelter up to $500,000 in sale profits. The base for the property is roughly $305,000 and the sale value is approximately $665,000. The difference is $360,000 so you should be able to shelter your entire gain. For details, speak with a tax professional.

Question: My wife and I are ready to take the plunge into the world of real estate.

We are very flexible on location. We are just starting our family, and want to pick a great location for raising children, and most importantly, we are looking for a hot market to launch a career in real estate.

Do you have any recommendations, considerations?

Answer: I would look for areas with a growing population and an expanding job base that met my personal preferences in terms of climate, recreation, affordability, employment opportunities, public policies, education and infrastructure.

Question: I did a short sale on my home in November. Can I still get a new mortgage or will I have to wait an allotted amount of time before I can apply for a mortgage?

Answer: You can apply for a loan today, but the real question is what lenders might think. How did the lender report the transaction to credit reporting agencies? Has your financial situation changed?

Unless you're buying with a huge downpayment I doubt that many lenders would be enticed by your application.

Question: My husband and I will be buying two or three properties a year with the purpose of flipping them. We retired somewhat early and are hoping to supplement our income by flipping some fixer-uppers. We currently have only purchased one which will be ready for sale shortly, but we'll plan the closing for after our six-month pre-payment penalty falls off. Do we need a real estate license to flip properties?

Answer: Real estate regulations generally define a real estate licensee as someone who provides buying, selling and management services for another and for a fee. However, the term can also be defined as someone who is "engaging regularly in a business of dealing in real estate or leases or options on real estate." For specifics, you need to have an attorney look at your state law as definitions can differ.

Question: In southeast Florida I purchased a vacant, waterfront, gulf access lot a year ago for $97,000. Expecting the lot to appreciate, I wanted to wait a full year before selling to save on capital gains taxes.

I originally bought the lot with my then-boyfriend who had made some really great money investing down there. He convinced me that it was fool-proof, and I took on the mortgage because he already had three mortgages himself at that time.

We were partners, with me footing the lion's share of the downpayment (I paid over $10,000 and he paid $2,000). We shared monthly mortgage payments of $560 until we broke up and he stopped helping.

Fast forward to today ... now I'm stuck with the monthly bill on an interest-only land lot that will mature in 2010. At that time I will owe a balloon payment of about $80,000.

I have my lot now priced as the lowest on the street and the lowest in the area for prime waterfront, but have not received one call on it.

I am so afraid of what might happen now as I am a single, 27 year-old woman who has no real knowledge of the "real estate game."

It was a VERY happening spot for a while. I had even received an offer of $125,000 shortly after purchasing it from a local broker. (Hindsight is 20/20). It's close to the beach in a deed restricted, beautiful, up-and-coming community, but I am really worried about the slow-down and how people are viewing the area now.

Please help me make a plan. It's on the market for $109,000 right now. I don't care about losing the money I already have into it, I just worry about having to pay on this for four more years and then having to default.

Answer: What was wrong with the $125,000 offer? You would have gotten out whole and not had worries about monthly payments or a huge balloon note.

You have four years to resolve this matter -- or likely the property will be foreclosed and you will owe any balance not covered by the forced sale. If it happens, this will leave you in debt and sink your credit rating.

If the property sells for $109,000 you'll be fine. If it does not sell in a reasonable period, ask your broker about revising your offer: Perhaps make the property available at $112,000 with a credit toward the buyer's closing costs, say $3,000.

Question: We currently own an amazing, top-floor corner unit condo. Our neighbor is moving and inquired as to whether we were interested in buying his place to join our two units into one large unit.

We also just put down about $20,000 earnest money for a top floor condo in a distant city. This distant building is new construction and won't be finished until May 2007. My husband wants to sell our option on the condo and buy the adjoining unit. I would rather not buy more real estate in one place and put all our eggs in one basket, so to speak. What would you advise?

Answer: There's logic to diversifying your assets, but when it comes to real estate most owners are best served buying in areas where they live, where they know about pricing trends and where they can monitor properties. Alternatively, if the local market is problematic, it may make sense to move both you and investment dollars elsewhere.

Question: We're looking for a house in a different part of the state. The current house is mortgage-free and should sell for about half the purchase price of the new house. If we put around 25 percent down on the new home, how long would we have to wait to refinance in order to put proceeds from our existing home toward the new one?

We don't really want to just apply it to the principle, rather, we wish to lower the mortgage payment amount on the new loan.

Answer: Why get one loan on the new property? Instead get two loans and then repay one when the current property sells. Or, get a bridge loan on your present property and then use the cash for a downpayment.

Question: We're considering purchasing new construction from a family that has a contract with a builder. The family has moved to another state and decided to sell the new home. The home is not yet finished. What precautionary measures should take we before we purchase this home? Do we have a right to ask for a copy of the builder's contract and materials list before signing any purchase agreement? And what protection can the purchase agreement offer us against liens, undetected problems, etc.

Answer: Does the seller have the right to "assign" the agreement with the builder? You may be able to get the property assigned to you rather than have the family buy and then re-sell to you -- with a lot of extra transfer taxes and other costs.

If the contract is assigned you can get nothing other than such rights as the buyers now have. You can change nothing not allowed by the agreement between the builder and the buyers. If you buy from the family once they acquire the property, then you can forge your own deal.

Go no further with this until you speak with an attorney who specializes in real estate.