Real Estate in Steamboat

If you know virtually nothing about home loans and want to learn the basics, reading “The Complete Idiot’s Guide to Mortgages, Second Edition” by Jamie Sutton and Edie Milligan Driskill is a good place to start. This book explains the very minimum essentials that home buyers, sellers and real estate agents need to know.

Readers won’t become home-loan experts, but they will understand how mortgages fit into the home-buying process. Co-author Jamie Sutton is a mortgage broker so I expected her to reveal lender dirty tricks and the secrets of how buyers can easily obtain the best home loans. No such luck. Other than suggest comparison loan shopping, she gave very few real-life examples.

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Throughout the book, the topic explanations skim the surface, never revealing more than the basic home-loan lending procedures. The book is sorely lacking in details, such as maximum FHA and VA loan limits. Although considerable space is devoted to explaining these government-backed loans, making them sound wonderful, the authors neglect to disclose the current low lending limits for most communities.

The book gets off to a rocky start, explaining the simple basics of getting pre-approved for a home mortgage before shopping for a house or condominium. Although the importance of checking credit reports and FICO (Fair Isaac Corp.) credit scores are emphasized, the authors totally neglect explaining the easiest place to do so is at www.myfico.com. Perhaps they’ve never heard of it.

Not a bad word is ever said about mortgage lenders. Although the required lender’s good-faith estimate is mentioned, the authors fail to warn that this important lender-supplied document is often incorrect and there is nothing a borrower can do about a false estimate of loan costs.

This appears to be a “sanitized mortgage loan book,” emphasizing the mortgage lending basics, but never disclosing what borrowers need to do to protect themselves from unscrupulous lenders.

Fortunately, the book gets better in the later chapters that explain the closing procedure and home-loan refinancing for existing homeowners. But a few real-life examples from Sutton’s mortgage lending experiences would have enlivened these textbook-style chapters, which tend to drift into boring ho-hum.

Chapter topics include “Before You Start Looking at Homes”; “Choosing a Lender”; “Getting Ready for Preapproval”; “Completing the Loan Application”; “Knowing Your Options if You Don’t Fit the Mold”; “Alternative Lending: Subprime Mortgages”; “Understanding the Costs of Doing Business”; “Choosing the Best Type of Loan”; “Deciding on the Loan Program”; “Shopping the Best Loan Package”; “Shopping for the Perfect Home”; “Closing on the Loan”; and “Refinancing Your Home.”

Throughout what should have been a great “how to get a mortgage book,” the authors spread vague generalities rather than specifics how home buyers can find the best lender and then obtain the best mortgage for their situation. Instead of using examples to explain their statements, Sutton and Driskill move on to the next general interest topic, making for dull reading. On my scale of one to 10, this disappointing book rates only a seven.

“The Complete Idiot’s Guide to Mortgages, Second Edition,” by Jamie Sutton and Edie Milligan Driskill (Alpha-Penguin Group, New York), 2006, $14.95, 202 pages; Available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

DEAR BOB: My parents are avid readers of your articles and have become quite the experts on reverse mortgages for senior citizens. But they live in a small town that has one bank, owned and run by an “old geezer” who has been there for 100 years. At least he seems that old. I know he charges high interest rates but he is so charming that most of the “locals” don’t bother to go to the nearest city about 50 miles away to compare loan terms. Where is the best place for my parents to get a reverse mortgage? Are reverse mortgages available at small-town banks? –Marsha W.

DEAR MARSHA: Yes, reverse mortgages are available everywhere, even in small towns. However, there are minimum property standards.

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Perhaps you remember the angry West Virginia homeowner whose reverse-mortgage application was rejected because her only drinking water source is a cistern (for some reason she didn’t want to drill a well). Frankly, I don’t blame the reverse-mortgage lender for rejecting that loan.

Your parents will discover most banks do not originate reverse mortgages for senior citizens. But a major exception is Wells Fargo Bank.

The easiest place to find reputable reverse-mortgage lenders for your parents in their area is at www.reversemortgage.org. They should consider the FHA (HECM), Fannie Mae and Financial Freedom Plan reverse mortgages.

More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.

NOTHING ILLEGAL OR UNETHICAL ABOUT CHARGING LOW RENT

DEAR BOB: I recently remarried. My new wife and I each own our own homes. We are going to move into her home when I retire next summer. My adult son recently moved back in with us and is now re-enrolled in a local college. Rather than sell my home, I am considering renting it to my son. Knowing his financial limitations, I would be willing to rent to him at a bargain low rent. But my wife thinks that is somehow unethical or illegal. I don’t see it that way. However, I’ve never been a landlord. Is there anything wrong with renting my house to my son at a low rent? –John C.

DEAR JOHN: No. You can charge your son any rent you wish. There is nothing unethical or illegal about charging him a low rent or even no rent.

However, after you and your wife move out, you might suggest he rent out one or two of the bedrooms to his college pals to increase his income. Many parents do that to teach their college kids the responsibilities of being a landlord.

Also, then you could charge him a higher rent if he has sufficient rental income — just a suggestion.

You must report rent received on Schedule E of your income tax returns. This is also where you deduct applicable expenses such as mortgage interest, property taxes, insurance and repairs.

But the IRS does not allow you to deduct additional expenses exceeding the rent, thus creating a tax loss, if you charge a below-market rent to a relative. That means you probably won’t be able to claim a depreciation deduction. For exact details, please consult your tax adviser.

GET YOUR TENANTS OUT BEFORE SELLING RENTAL HOUSE

DEAR BOB: Please give us guidelines to inform our rental-house tenants we plan to sell their rental house. We are prepared to offer them an incentive to stay in the house until it is sold, such as a rent-back after the house is sold. What do you suggest? –Kathleen and Chuck N.

DEAR KATHLEEN AND CHUCK: Most experienced real estate agents will tell you it is much more difficult to sell a house with tenants than to sell a vacant house.

If you offer the tenants a rent-back after the sale closes, you further hurt your chances of selling because most buyers want to move in immediately and they don’t want to deal with tenants.

Presuming your tenants have a month-to-month rental agreement, I suggest you give your tenants a 60-day notice to move. After they are out, then you can paint and clean the house to get it into first-class condition to sell.

The new Robert Bruss special report, “The 20 Essential Questions Smart Home Buyers Must Ask to Avoid Overpaying in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

Dear Barry,

Last year, we purchased a 1947 home. Since then, we’ve noticed a lot of new cracks in the plaster walls and some unevenness of the floors. Before buying the house, we had a home inspection, but our inspector did not check the foundation crawlspace. He said that he’d forgotten to bring his overalls and would have to forego that part of the inspection. Am I being overly paranoid or is there a potential foundation settlement problem that our inspector failed to see? –Paul

Dear Paul,

Inspection of the crawlspace is a vital aspect of a thorough home inspection. Your inspector’s omission of this procedure, on the slim excuse of forgotten overalls, begs for an appropriately outrageous analogy. He might have omitted the roof inspection because he’d forgotten to bring his ladder. He could have disclaimed poorly lighted areas because his flashlight batteries were dead. Lack of a screwdriver might have prevented inspection of the electric service panel. He could have declined to provide a written inspection report because he’d forgotten to bring a pen, or he could simply have explained that he wouldn’t be inspecting the house at all because he’d forgotten to get out of bed that morning.

There are a few acceptable excuses for not inspecting a crawlspace, such as rattlesnakes, skunks or flooding below the building, but neglecting to bring one’s overalls to the inspection site does not qualify.

Failure to inspect a subarea is professionally negligent because there are so many vital components to evaluate. The most obvious, of course, is the foundation itself — to check for cracks or other signs of settlement, deterioration or instability. Inspection of the subarea also includes a review of the wood framing and subfloor for faulty construction, moisture damage and inadequate ventilation. A competent inspector also looks for signs of faulty ground drainage and evaluates the electrical wiring, water lines, gas lines, drain lines, air ducts, and more. A home inspection that does not include a complete crawl of the subarea is an incomplete inspection at best.

Now that you’ve observed cracks in the building, the foundation is suspect, and the lack of a subarea inspection looms as an omission with major consequence. The inspector should be notified of your concerns and given the opportunity to inspect the subarea at this time. However, the credibility as a qualified professional is now suspect, given his questionable performance to date. Therefore, a second inspection, by an inspector whose priorities tend toward completeness, is strongly recommended.

Dear Barry,

We’re about to buy a house that has a ventless gas fireplace. We’re concerned about health and safety hazards with the unit, in spite of assurances that the exhaust is completely safe. What do you advise? –Joel

Dear Joel,

Ventless gas fireplaces are legal in most states, and those who manufacturer and distribute them swear by their unfailing safety and the impossibility of venting carbon monoxide into a home. Given this assurance, one must then conclude that these fireplaces are the only technological inventions in the course of human history that are incapable of malfunction. Who would like to stake their life on that assumption?

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Copyright 2006 Barry Stone

DEAR BOB: If my partner and I sell our jointly owned home, will we owe capital gains tax if we sell before owning it for two years? We will probably each make about $50,000 profit –Gina B.

DEAR GINA: The fact you are not married to each other is irrelevant. What matters is both names are on the title to your principal residence, and you are selling before owning and occupying it at least 24 of the last 60 months before its sale.

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If you can meet that test, Internal Revenue Code 121 provides up to $250,000 tax-free capital gains for each co-owner.

However, IRC 121 specifies if the reason for the principal-residence sale after less than 24 months of ownership and occupancy is a health reason, change of employment location qualifying for the moving-cost tax deduction, or “unforeseen circumstances,” each qualified co-owner might be eligible for a partial deduction.

To illustrate, suppose the reason for selling your home is change of employment location at least 50 miles further away from your home than your current job site. Let’s also suppose you each owned and lived in the residence 12 months. Therefore, each co-owner would be eligible for up to $125,000 (50 percent) of the $250,000 tax-free home-sale profit exemption in this example. For full details, please consult your tax adviser.

EVERYONE SEEMS HAPPY WITH $250,000 HOME-SALE TAX BREAK

DEAR BOB: I heard there is talk of changing the Internal Revenue Code 121. Is this true? –Kathleen B.

DEAR KATHLEEN: No. Most home sellers are very happy with IRC 121. The only proposal in Congress of which I am aware is to raise the $250,000 principal residence sale tax exemption. But, due to the federal budget deficit, chances of that happening anytime soon are slim to none.

HE OR SHE WHO MAKES THE PAYMENT GETS THE DEDUCTION

DEAR BOB: I am going to refinance my home and want to add my girlfriend to the mortgage. Should we be “tenants in common?” Since both of us will be responsible for paying the mortgage, can we both claim the interest deduction on our tax returns? –Mike T.

DEAR MIKE: If you are not married, but both of you hold title to the residence, then the individual co-owner who actually pays the mortgage interest and/or property tax payments is entitled to deduct that total amount on his or her individual tax return. As for the best way to hold title, please discuss that with a local real estate attorney.

Both names must be on the title if you each are to claim the deductions you each pay. Be sure to keep your cancelled checks to prove your individual payments. Your tax adviser can give you further details.

WILL LEASE-OPTION GET A CONDO “SOLD”?

DEAR BOB: My condominium has been listed for sale over two months with a very fine Realtor. But the local market seems “slow.” She has held a “broker’s tour,” advertises it every week, has it listed in the local MLS (multiple listing service) and on the Internet, and holds a Sunday open house twice a month. Although the condo interior is very nice, especially since it is “staged” to show its best, the problem is the condo’s street “view” isn’t very attractive. I’ve reduced the asking price twice. After showing her your recent item about how you’ve used lease-options to “sell” homes, she said lease-options don’t work and she wouldn’t even consider advertising it as a lease-option. Any suggestions to get my condo sold? –Byron A.

DEAR BYRON: Most Realtors have never done a lease-option. Your Realtor probably doesn’t understand the lease-option benefits for seller, buyer and agent.

When selling a house or condo “the regular way” doesn’t work, my experience has been a properly structured lease-option always works to get the home “sold.”

As I often tell listing agents, it’s better to do a lease-option and earn part of your commission up-front and the balance when the option is exercised than to earn nothing when your listing expires unsold. Details are in my special report, “How to Profitably Use a Lease-Option to Buy or Sell Your Home or Investment Property,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.

CAN EX-SPOUSE FORCE SALE OF VACATION CONDO?

DEAR BOB: My friend went through a divorce about a year ago. Her ex-husband convinced her to do an Internal Revenue Code 1031 tax-deferred exchange. She bought a ski condo with him and their son. They have no written agreement on when to sell or other specifics. The college-age son takes care of the rentals. My friend wants to sell her interest in the ski condo. Is there any way she can force her ex-husband to buy her out? –Jessica W.

DEAR JESSICA: No. Without a written partnership agreement, including a buy-out arrangement, your friend can’t force her ex-husband to buy her out, other than by begging and pleading.

But she can bring a “forced sale.” The legal term is a partition lawsuit.

Your friend can get a court order in the county where the condo is located ordering the sale of the condo, with the sale proceeds divided among the co-owners.

For details, she should consult a real estate attorney in the county where the ski condo is located. As a practical result of filing the lawsuit, if the ex-husband wants to keep the condo (perhaps because of the deferred capital gains tax which would become due), he might agree to buy her out.

IS A PROPERTY GIFT SUBJECT TO FEDERAL GIFT TAX?

DEAR BOB: You frequently advise against parents making lifetime gifts of property to their children. If they went against your advice and did that, wouldn’t the value of the home be subject to gift tax? –Marlene M.

DEAR MARLENE: Possibly. If total nonexempt gifts of the parents exceed the lifetime $1 million per person federal gift-tax exemption, the property gift will be subject to gift tax.

Even if no gift tax is due, if the annual gift from each donor per donee exceeds $12,000, a federal gift tax return must be filed. The amount of the nonexempt gift is subtracted from $1 million lifetime exemption for each donor, thus reducing their gift-tax exemption and their federal estate-tax exemption (currently $2 million).

Also, the donees should be aware they must take over the donors’ presumably low adjusted cost basis for the home. If they instead inherit the property, they receive it with a new “stepped-up basis” to market value on the date of the last decedent’s death. For details, the parties should consult their tax advisers.

ARE “INTEREST ONLY” HOME LOANS “ALL BAD”?

DEAR BOB: I have around $300,000 “idle equity” in my home. My current mortgage balance is only about $34,000. Although I am retired and in good health, I am “only” 64, so a reverse mortgage won’t give me much because I am too young. I have a decent retirement income, but not enough to afford to go with my friends on cruises and afford other frivolous expenses like a new car. The wonderful banker at my community bank, where my late husband did business for many years, suggests I get a 30-year fixed-rate mortgage with “interest only” payments for the first 10 years. There is no negative amortization, which you often warn about. He says I can easily afford the monthly payments, even after they “adjust” in 10 years to pay off the loan in 20 more years. My children advise against it. Your opinion please –Mavis R.

DEAR MAVIS: Go for it! Enjoy your home equity. Your selfish children know you will be spending their inheritance so they want to discourage you from fully enjoying your retirement while you are still in good health.

There is nothing “all bad” with an “interest only” home loan that has no negative amortization. The mortgage you describe sounds ideal as long as you can afford the monthly payments on your retirement income, both now and in 10 years when the monthly payment adjusts.

The type of mortgage that gets homeowners in financial trouble is the so-called “option mortgage” where the monthly payments are so low they don’t even pay the interest. When that happens, the lender adds the unpaid interest to the mortgage balance, resulting in negative amortization where the borrower owes more than the original balance.

The new Robert Bruss special report, “The 20 Essential Questions Smart Home Buyers Must Ask to Avoid Overpaying in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

Most mortgage lenders require that home buyers take out a homeowner’s insurance policy to protect the lender’s interest in case there’s a fire. It’s a good idea to shop for homeowner’s insurance soon after you enter into contract to buy a home.

Before you start shopping, find out if any claims were made against the property during the past five years. Your insurance agent should have access to a data bank that will give you this information. Or, ask the home sellers directly.

If the property has been subject to water damage claims within the past five years, you may have trouble finding an insurer for the property. Or, you may have to pay more for insurance than you anticipated.

The inclination is to go with the insurance company that quotes the most competitive premium price. Just make sure that you’re collecting and comparing quotes for comparable coverage.

It’s difficult to find Guaranteed Replacement Cost Coverage anymore. This type of insurance pays the entire cost to rebuild your home if it’s destroyed by fire, even if that cost exceeds the policy limit.

The standard coverage today is Limited Replacement Cost Coverage. This type of policy will only pay up to the policy limit. So, if your house costs $750,000 to rebuild, but it’s only insured for $500,000, this is all the insurance company will pay. With Limited Replacement Cost Coverage, it’s important that you carry adequate coverage, even if your insurance agent thinks you need less.

A preferable type of insurance for many homeowners is Limited Replacement Cost Coverage with an Addition Percent, which pays the replacement cost up to a specified amount (often 20 percent) over the policy limit.

For example, if you insure your house for $500,000 and it costs more to rebuild, the insurance company will pay up to $625,000, which is 120 percent of the policy limit. You still need to make sure you’re carrying adequate coverage, but there’s a margin for error built in.

HOUSE HUNTING TIP: Be on the look out for insurance agents who under-quote the premium by estimating low on the price per square foot to rebuild in your area. Costs to rebuild vary considerable from one area to the next. If you call the 800 number for an insurance company for information, you could end up getting a quote from an agent out of state where building costs are much lower.

Your real estate agent should be able to tell you an approximate price per square foot to rebuild in your area. The lender’s appraisal of the property should give you the number of square feet. Multiply the price per square foot to rebuild by the number of square feet to figure out how much coverage you need.

Unfortunately, some local insurance agents give a quote based on a low replacement cost in order to undercut their competitors. If you go with the low bidder, you may find at closing that you don’t have adequate coverage according to the lender’s requirements for funding the loan. This could delay the closing. Most lenders want the structure to be insured for the replacement cost value specified on the appraisal that was done for the lender.

One way to cut the premium costs is to take a larger deductible. For instance, for $500,000 of coverage there could be as much as $600 per year difference between a $1,000 and $5,000 deductible policy. Check with your lender to find out what size deductible is required. You may be able to increase the size of the deductible when you renew the policy one year after closing.

THE CLOSING: Most insurance companies offer a home alert discount if the home has a security system. And, discounts are offered if the home insurer also insures your car.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

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Copyright 2006 Dian Hymer

“United First Financial is offering a program that will eliminate your mortgage in 1/3 to 1/2 the time … They are asking $3,500 for the program. Comments?”

It never ceases to amaze me how widespread and deep-seated the belief is that somewhere out there must be a good fairy who will solve all of our financial problems. This belief sustains lotteries, which help keep poor people poor, and a host of schemes directed at homeowners that promise to pay down their mortgage loans quicker and easier.

Some of these schemes are outright frauds, such as the one peddled by Success Trust and Holding that I warned readers against last year. It took until August of this year before the SEC took action against them, by which time they had relieved more than 500 homeowners of several million dollars.

At the opposite end of the spectrum are schemes that discipline borrowers to make extra payments, of which the most important are biweekly programs. So long as borrowers understand that they don’t need a biweekly program to make extra payments, and that what they are purchasing is only a convenient way to discipline themselves to make the extra payments, these programs are fine.

Within the last two years, a third type of early-payoff scheme has appeared with a new twist. This scheme provides borrowers with both a disciplined way to make extra payments and a way to reduce their bank deposit, with the interest savings on the smaller bank deposit also applied to the mortgage balance.

Last year I described the CMG plan, which allows the borrower to use a mortgage taken from CMG as if it were a checking account. The borrower earns the mortgage rate rather than the deposit rate on the amount that he would otherwise have held in his deposit account. The difference is applied to the mortgage.

The UFF plan is a variant that does not require that you take a mortgage from them. UFF assumes you already have a first mortgage, and it guides you on opening a second mortgage in the form of a home equity line of credit (HELOC), which plays a central role in the scheme. Here is an example, which I have oversimplified to reveal exactly where the savings come from and how much they are likely to be.

Assume the borrower’s monthly paycheck is $8,000, and on the first day of the month he does the following: a) Draws $8,000 on his HELOC, which is used immediately to reduce his mortgage balance, and b) applies his paycheck of $8,000 to pay down the HELOC. On day 2, therefore, his HELOC balance is zero and his mortgage balance is lower by $8,000.

As the month progresses, he pays his expenses by drawing on the HELOC, and the HELOC balance gradually rises to $8,000. However, the average balance will only be about $4,000. For the month as a whole, therefore, he has saved interest on $8,000 of the mortgage while incurring interest on $4,000 of the HELOC. Assuming both are priced at 6 percent, he has saved $4,000 x .06/12, or $20. Over a year, that adds to $240. Of course, if the paycheck is $16,000 instead of $8,000, the number will be $480, and if the paycheck is $4,000 the number will be $120.

For several reasons, these calculations overstate the savings. The HELOC as a second lien will almost always have a higher rate than the first mortgage. Further, it will take some days for the borrower’s paycheck to be credited to his HELOC. Finally, and most important of all, the date when the mortgage is credited for the extra payment depends on the policies of the lender servicing the mortgage. In some cases, a payment will be credited to the balance at the end of the preceding month, which works to the borrower’s advantage, but in other cases, credit is not given until the end of the current month, which would reduce and perhaps eliminate any savings.

Note that a one-time payment of $3,500 on a 6 percent mortgage would save $210 of interest a year. This is probably more than most borrowers would save using the UFF program.

Of course, if you spend less than your paycheck and apply the balance to your mortgage, it is a different story. The claims by UFF that you can pay off your mortgage in one-third or one-half the time, depend on your doing exactly that.

For some borrowers, a program that disciplines them to save more of their income may be worth paying for — but not worth $3,500! You can buy a pamphlet called Let Your Mortgage Make Your Rich, which also makes exaggerated claims, but it lays out the essentials you need to develop this type of program. I negotiated a discounted price of $43.50 with the authors if you order it at www.letriches.com/wharton. I have no financial interest in it.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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Copyright 2006 Jack Guttentag

One week ago, the credit markets were worried by signs of a housing bottom, economic strength, inflation risk and the possibility that the Federal Reserve might have to hit us again. But, that’s all reversed now: the 10-year T-note is down from 4.84 percent to 4.68 percent, with mortgages following from a high of near 6.5 percent to now under 6.25 percent.

Stay centered here: we’ll get the first data from October at the end of next week, and until then I’ll be suspicious that this rate decline has room to run.

The Fed’s mid-week statement was the catalyst for sentiment change: after a recitation of economic and inflation dampers, the key line is, “Some inflation risks remain.” (Not significant risks, just “some.”) The Fed isn’t considering an ease, but isn’t going to tighten, either.

Caution: the risk of rising inflation has abated, but the core rate is way above the target range. The background debate at the Fed, revealed in deep memoranda on Monday, is whether inflation can decline to the safety range with economic growth in the 2.5-3 percent range, or whether deeper slowing will be required. Also, is the noninflationary economic speed limit lower than thought?

Thursday’s housing news added to the sentiment switch. The same guys who shouted through September that the blown housing bubble would blast the economy then flipped to “worst-is-over” mode for two weeks, and are now back to blast. Their red flag was a 9.7 percent drop in the median price of homes sold.

Be careful out there: the home-price decline came from a change in the mix of sales and says nothing about the value of an individual home anywhere. Stick with the midline of housing: the slowdown has not bottomed, and it’s not in a downward price spiral, either. As a national matter, housing is entering a long-term flat patch, one not so much damaging the economy as not adding stimulus — so far.

Today we got the last leg of the bond rally on news that third-quarter GDP had grown only 1.6 percent. Growth that slow has bond optimists/economic ghouls pleased at the thought of rising unemployment, the key element for inflation reduction and Fed rate cuts.

Pull on those reins for just a sec: consumer spending in the GDP report rose 3.1 percent, which was better than the prior quarter, and the weakness in GDP was overstated by statistical footsie involving the trade deficit and inventories. Orders for core capital goods rose a solid 1.1 percent in September, 11 percent year-over-year.

If the economy has slipped onto a new slope of slowdown, we’ll see it in the payroll and unemployment data due next Friday. Surveys show a very cranky nation, with 65 percent saying the economy is lousy, but I think the explanation is acute competition with foreign labor. Businesses are thriving, profits are huge, but the money isn’t percolating to the work force. The unemployment rate is all the way down at 4.6 percent — jobs are plentiful, but households feel they are on a hand-to-mouth edge.

One way to interpret the on-edge sensation is that it’s fragility. Housing is gone as a stimulus and if anything goes wrong with the consumer, that’s all she wrote. At the moment, Federal Reserve Chairman Ben Bernanke’s ongoing rate pause (to which I was opposed) looks like genius.

Many are asking if the election will have market impact. Not in the slightest. Every bond trader holds all politicians in equal contempt.

Two other news items won’t move markets, but are worth the historical perspective: First, 90 percent of households in Vietnam today have TV sets, and the national fad is game shows. Second, Saddam Hussein from his jail cell begged all Iraqis to stop killing each other.

The virtues of patience are easy to miss, and not just at the Fed.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Copyright 2006 Lou Barnes

Do you have any friends who sell their homes and move approximately every two years? I know several of those very smart folks. You may wonder why they change homes so often. No, they are not in the federal witness protection program. But they have a very profitable reason.

They are “serial home sellers.” There is nothing illegal or immoral about that. In fact, it is extremely smart to sell your personal residence every two years or so, especially if there is no tax to pay on your resale profit.

Purchase Bob Bruss reports online.

TAX LAW ENCOURAGES PROFITABLE TAX-FREE HOME SALES. Just in case you have no clue what this is all about, every homeowner needs to know that Internal Revenue Code 121 permits tax-free principal residence sales profits up to $250,000 (up to $500,000 for a married couple filing a joint tax return).

To qualify, the home seller(s) must own and occupy their principal residence at least 24 of the last 60 months before its sale. But IRC 121 can only be used every 24 months. If you want to maximize your tax-free sale profits, there are five easy steps:

1. Buy a sound, well-located house or condominium below market value needing cosmetic fix-up work.

2. Move in and make it your principal residence.

3. Make profitable improvements to the residence that cost less than the market value they add.

4. Profitably sell the house at a tax-free profit not exceeding $250,000 (up to $500,000 if husband and wife occupied the home 24 or more of the 60 months before sale and they file a joint tax return).

5. Repeat every 24 months to become known as a tax-free “serial home seller.”

HOW TO MAKE PROFITABLE HOME IMPROVEMENTS. If creating tax-free profits, while enjoying your home is appealing, especially if you are a handyperson or in the construction field, serial home selling can be the perfect business opportunity. The only skill required is to recognize a house or condo with “the right things wrong.”

Most older houses qualify, as virtually every house more than 10 years old needs paint inside and outside. Paint is the most profitable improvement homeowners can make. Spending $1,000 on painting often adds $5,000 to $10,000 in market value.

Other examples of homes with the “right things wrong” include the need for new light fixtures, fresh landscaping, new carpets and flooring, and overall cleaning and repairs. An especially profitable home improvement is adding a second bathroom to a one-bathroom house.

However, the “wrong things wrong” with a house are necessary but unprofitable work that doesn’t add more market value than it costs. Unprofitable examples include a new roof, foundation repairs, new wiring, replacement of galvanized pipes with copper pipes, siding replacement, and window replacement.

Many home improvements are “nice to have,” but they don’t add more market value than their cost. Examples include bedroom and family-room additions, kitchen remodeling, and bathroom upgrades. Such work may make your home more desirable while you live there, but is unlikely to add more than the cost to the market value.

THE MAJOR DRAWBACK OF BEING A SERIAL HOME IMPROVER. If you think buying a run-down house, making profitable improvements while living in it, and selling it for up to $250,000 (or $500,000) tax-free profit sounds like fun, think again. It’s hard work.

While you and your family are living in the house as it undergoes major renovation, that can be what TV’s Dr. Phil calls “a life-changing experience.” The disruption of not having a kitchen to cook in, or only one working bathroom for a large family, and the daily disruption of having strangers working in your home can’t be fully described.

A few summers ago my neighbors went through such an experience. They wisely decided to take the kids to Europe so by the time they got back their remodeled home was almost finished. Yes, the marriage survived.

Because major home improvements can be traumatic, the smartest serial home sellers renovate their homes before moving in. Then they get to enjoy their fixed-up home for at least two years without the hassle and inconvenience of work in progress.

DON’T MAKE THESE COSTLY MISTAKES. Earning up to $250,000 tax-free (or $500,000 for a married couple) every two years excites most people. But there are some pitfalls to avoid:

1. Don’t buy a house in excellent condition (it lacks fix-up profit potential). Instead, buy the worst house in a good neighborhood.

2. Avoid most condominiums and townhouses. The reason is no matter how nice you fix up your unit, its maximum resale market value will be held down by the recent sales prices of other units in the same complex. For example, if you fix up a condo penthouse but the other units in the building and the common areas are “ho-hum average,” you won’t earn much profit.

3. Stay away from “extreme makeover” houses, which need to be torn down (called a “scraper”) or renovated by moving walls and rebuilding the interior. Profiting from such houses is extremely difficult.

4. No matter how much potential a fixer-upper house has, stay away if it is in a bad location, high-crime area, or the public-school quality is poor. These three criteria will hold down resale value no matter how well the house is upgraded.

WORK WITH A SAVVY BUYER’S AGENT TO FIND FIXER-UPPERS. Buyers of fixer-upper houses have a major advantage. Most other home buyers don’t want these fix-up houses. They prefer to buy a house, turn the key in the door, and move in. That’s the way to profitably sell your house.

A sharp buyer’s agent will alert you when a fixer-upper house with “the right things wrong” comes on the market, whether it be in the local MLS (multiple listing service) or a “for sale by owner” FSBO. In the current “buyer’s market” in most cities, there is little demand for these run-down houses offering profit potential.

Additional sources of profitable home purchases, which most buyer’s agents don’t follow, include foreclosures, probate and bankruptcy sales. Vacation or second homes can also be profitable, but they have special risks such as fickle buyer demand, which is often seasonal and volatile.

HOW TO PAY FOR THE IMPROVEMENTS. Fortunately, most “right things wrong” fix-up houses don’t require costly improvements. To pay for the improvements, because the house will become your principal residence for at least 24 months, many major lenders now offer combination mortgages to pay for both the purchase and the improvements.

The lender’s appraiser will evaluate both the home’s current “as is” market value and the upgraded market value after the improvements are completed. The lender pays out the improvement portion of the loan as the work is completed.

Another finance method is to buy the house with mortgage financing and then obtain a home equity credit line secured by a second mortgage to pay for the improvements.

However, this method is difficult if the home buyer doesn’t have much initial equity. More details are in my special report, “How to Earn Up to $250,000 (or $500,000) Tax-Free Profits Every 24 Months Buying and Selling Houses,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Let’s face it, who really enjoys cleaning their gutters? Hauling heavy ladders around, mucking out leaves, pine needles and mud, perching precariously from roof edges — there are definitely better ways to spend a Saturday afternoon. But if you don’t keep up with it, the result can be clogged and ineffective gutters and downspouts, overflowing rainwater and even an increased chance of ice damming.

With that in mind, a number of manufacturers have invented a variety of products that seek to eliminate that particular maintenance headache. Generically known as gutter guards, leaf guards or gutter screens, as well as by a number of specific brand names, they all share a common goal — to allow water to enter your gutters while at the same time blocking all the debris that the water carries with it.

While there are a variety of styles and designs, gutter guards take one of two basic forms — perforated styles and surface tension styles. Perforated styles are basically just pieces of perforated or woven metal that sits on the top of your gutter. The principal is simple — water flows through the holes in the guard, but debris is too big to get in. They work fine for most leaves and also catch a large portion of needles, but they do allow smaller dirt to filter through. When enough leaves or needles build up on top of the screen, it becomes ineffective and needs to be cleaned.

Surface tension styles are higher tech and generally seem to work better that the simpler perforated or slotted styles. The typical surface-tension gutter guard fits over the top of your gutter and almost completely encloses it. The guard is formed so that one or more curved waterfall-like lips run the length of the gutter and roll slightly backward, toward the house. There are slots or holes between the curved lips or between the lip and the face of the gutter.

The principle here is that as water flows across the top of the gutter guard, surface tension makes the water cling to the surface with sufficient tenacity that it will flow over the backward-curved lip and into the gutter. Debris on the other hand can’t make the same bend over the lip and into the gutter, and instead is propelled off the top of the gutter guard and down to the ground.

SOME SHOPPING TIPS

There are lots of gutter guard styles and materials out there to chose from and while each one touts itself as being the ideal solution, the truth is that individual results will vary depending on the style and pitch of your roof, the amount of rain and snow you get and the type and quantity of debris that typically reaches your roof. So, when it’s time to go shopping, here are some questions to ask:

Who does the installation? Some products can be purchased and installed by any homeowner or contractor, while others can only be installed by factory-authorized dealers.

What is the installed cost? Some gutter guards are quite inexpensive, while others can be just the opposite. You want to know exactly what the installed cost will be — which includes the cost of hiring someone to install them if you buy them and don’t want to do the work yourself. Once you have that cost, compare it what it would cost to have a professional gutter company come out once of twice a year and clean your gutters for you.

Will it work with your existing gutters? Not all gutter guard styles are compatible with all gutters, so be sure you check on this before making a purchase.

Will it work with your existing roof and roofing? Some gutter guards will not work will with very steep or very flat roofs, or with some types of roofing materials. Again, be sure of the compatibility with your existing roof pitch and type of roofing before you buy.

What are the maintenance requirements? Few things are truly maintenance free. Find out what additional maintenance will be required, and if the company claims their product is completely maintenance-free, ask for a money-back guarantee in writing should that prove not to be the case.

What about ice and snow? If you live in an area that is subject to snow and ice buildup, be sure to check whether the gutter guard can be damaged by that or whether it contributes to ice buildup and ice damming.

How about warranties and references? If you are having a contractor do the work, be sure to ask for license and insurance information, references and a written warranty.

For more information, some companies to contact include: Gutter Helmet, www.gutterhelmet.com, 1-800-543-4202; GutterWorks, www.gutterworks.com, 1-888-376-6871;  K-Guard, www.kguard.com, 1-800-435-4356; Rainhandler, www.rainhandler.com, 1-800-942-3004; and WaterFall, www.water-fall.cc, 1-888-326-2638.

Remodeling and repair questions? E-mail Paul at paul2887@hughes.net.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

A while back I was sitting in a cafe near a couple of freshly minted techie types. I happened to overhear — OK, after a while I strained to overhear — as one explained to the other how he’d loathed his Pennsylvania hometown for its stodgy work ethic, its Middle-American attitudes, and so on. He summed up by breezily remarking, “Another generation of steelworkers would have to die before I’d go back to Pittsburgh.”

This last comment left me wondering a) whether he had some sort of reasoning disability, or b) whether our schools have simply quit teaching any history about who or what built this nation. For a purportedly educated person to dismiss one of America’s historically pivotal cities because there were too many steelworkers still hanging around seems the height of both ignorance and unkindness. Those awful Pittsburgh steelworkers! It was nice of them to help make us the world’s industrial power, but now they should just hurry up and die so my friends and I can sip lattes by the river!

Granted, few Americans have interest in the kind of unglamorous role played by cities with names like Erie, Bethlehem, Milwaukee, Akron, and Cleveland. And, yes, Pittsburgh. Now that the primacy of American heavy industry has passed into history — and it surely has — it’s especially easy to overlook the contributions made in those smoky old factories in those formerly not-very-pretty towns. They were factories that made big, dumb, low-tech things like steam shovels and locomotives, skyscraper steel and bulldozers, tires and machine tools. In short, they were the factories that built the nation.

The Pittsburgh region has, if anything, a better claim than most to being the erstwhile keystone of our long industrial reign. It’s the home of a number of historic American companies, including Westinghouse, PPG, and most famously, Carnegie Steel, whose vast Homestead Works was the nation’s largest steel mill and precursor to the mammoth United States Steel Corp. The Homestead Works ultimately sprawled across 430 acres beside the Monongahela River, and at one time nearly one-third of all the steel used in America was made there.

No doubt my cafe neighbor would be pleased to hear that the Homestead Works was shut down in 1986, and that most of it was razed and replaced by a residential and commercial development called the Waterfront. It was also around this time that United States Steel, perhaps seeking to sound more high tech, took on the rather silly corporate appellation of USX, which only goes to show that not even steelmakers appreciate steelmakers.

Few people will miss the environmental degradation and almost sublime ugliness of smokestack industries like Homestead. Yet that shouldn’t diminish our appreciation for what these places accomplished in their time.

Fortunately, a few historic elements of the Homestead Works have been preserved to help remind Americans — some Americans, anyway — that our built environment wasn’t conjured out of strings of zeroes and ones, but rather was quite literally forged in the kinds of blue-collar cities and towns that we, in this high-tech age, might be a bit too quick to dismiss — those places with stodgy work ethics and Middle-American attitudes that so disturbed my friend in the cafe. Places like Pittsburgh, whose future now lies in other quarters, but whose generations of steelworkers will never really die.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Arrol Gellner