Real Estate in Steamboat

When we talk about the new house, we’re always focused on the look.

Nobody talks about the lasting look or what it takes to get one. What’s required to ensure that your new house will look as good in 30 years when your mortgage is paid off as it did on the day you moved in?

The answer: a strong focus on durability, which is “the most underrated aspect of any new house,” said Dan Chiras, a green building expert, teacher and author of “The New Ecological Home,” who is based in Evergreen, Colo. It’s surprising that it gets such scant attention from the buying public, he added, because over time it’s the reason that some houses come to be valued more than others.

In every market in the country, there are houses that command higher prices because of their durability. These houses are rarely labeled as such. Instead they are identified by the name of the person who built them because his or her work has stood the test of time. In some cases, the builder’s reputation lives on long after he or she has passed from the scene.

For example, Washington, D.C., home builder Henry Wardman became well known for the several hundred houses he built in the northwest area of the city from the 1910s through the ’30s. To this day, nearly 70 years after he died, they are still known as “Wardman houses.”

Having once owned a Wardman house myself, I can attest that it was very solidly built. When we sold it 21 years ago, its metal roof had lasted nearly 60 years, and the original furnace was at least 10 years into overtime and still going strong.

Durability certainly requires quality materials, Chiras said. But it also requires an inordinate amount of attention to the details — both large and small — that keep water out of the structure.

Superior framing with high-quality lumber, the best type of insulation to max your energy savings and lower your utility bills, and the Leonardo Da Vinci of interior paint jobs will all be damaged if they endure prolonged exposure to moisture. Not only will this produce mold inside the wall cavity, but it can also cause the wall to rot, said Chiras, noting that such a disheartening discovery was recently made by his neighbors not long after their final payment on a 30-year mortgage. In their case, the entire exterior wall had to be rebuilt at a cost of $125,000.

Two kinds of moisture affect houses: one is rainwater and the other is condensation from moisture-laden air. In our discussion, Chiras focused on the rain issue.

To keep the rainwater out, the first line of defense is a good roof to protect the living spaces below, Chiras said. Just as important, however, are the gutters and downspouts that carry off the rainwater that hits the roof surface. While homeowners appreciate the function of the gutters and downspouts, few realize where, exactly, the water should be discharged from them, Chiras said. The sweet spot is about 6 feet from the house, far enough to keep the rainwater from affecting your foundation and basement.

The cheap and easy fix is a 6-foot metal extension at the base of the downspout, but it can be easily kicked off or dented by a wayward lawnmower or an exuberant dog (a problem we’ve experienced at our current house). The more expensive, but more effective solution is a downspout that empties into a buried drain that expels the water some distance from your house.

Rain that falls in your yard can also be a problem. To keep this source of rainwater from affecting your foundation walls and footings, the ground around your house must be sloped away from it. The degree of slope required can vary with soil type, but generally it should have a minimum slope of about 5 percent, Chiras said. To the untrained eye, this looks basically flat. To ensure that you are maintaining this slope properly, he recommended that you increase it somewhat because the slope is easier to maintain when you can see it.

Even with the correct slope around your house, some of the surface runoff will be absorbed into the soil, which will also be taking in water from elsewhere in your yard. As the rainwater works its way down to the water table, it can go every which way, including up against your foundation walls and footings. To keep it out of your basement or a crawl space, the foundation walls must be waterproofed on the outside, generally with a black, gooey substance made from tar. With the goo in place, water runs down the wall, collecting in a French drain encased in gravel that runs along the top of the footing. The French drain carries the water away, preventing further mischief.

The water will also try to come in through your basement slab. To stop this intrusion, the slab sits on thick polyethylene plastic sheeting. This in turn sits on top of a 6-inch bed of gravel that drains off any water coming its way. (Gravel that naturally occurs in soil creates excellent drainage; acreage with this condition is prized by vineyard owners).

You’re still not done with the rain. It can also hit the outside walls of your house, sometimes quite forcefully. Your cladding might be a waterproof material like vinyl or a water permeable one like brick. Either way, those pesky raindrops can wick their way behind the cladding through the tiniest of cracks. To keep this water from penetrating any further, you need a drainage plane. That is, a layer of black, asphalt-impregnated paper, or Tyvek, the same stuff used to make Fed Ex envelopes. When the water hits the Tyvek, it runs down and out.

Next is the flashing. Where one material meets another on the exterior, water can also wiggle in. To stop it, you need metal flashing strips to bridge the two, as for example, where the siding abuts a window frames. Proper flashing is essential for the roof, especially in the valleys created when two sloping roof surfaces intersect.

And finally the caulking. This is applied where on the exterior two materials meet and there is a potential air leak that can allow moisture to get into the building wall, as for example, where the siding meets the protruding pipe of a garden hose faucet. You can also have both flashing and caulking in some areas, for example around window and door openings.

A critical fact about caulk that many homeowners forget is that it doesn’t last forever, Chiras said. It must be regularly reapplied by a conscientious homeowner. How often depends on where you live.

And even when all these precautions are taken to keep rainwater out of your house, you can still have substantial water “intrusion” because of circumstances beyond the builder’s control. When the basement of our Wardman house flooded, the source was next door. Our neighbor’s basement had flooded, and the water went right through the 12-inch brick firewall between our houses.

Questions or queries? Katherine Salant can be reached at www.katherinesalant.com.

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

Copyright 2007 Katherine Salant

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.

DEAR BOB: I signed a contract with a real estate agent for a four-month listing to sell my home. But he has not done much. I decided not to sell my home; but is there any other way to get out of this listing contract legally and hire a better agent? –Vincent N.

DEAR VINCENT: Presuming you signed a four-month exclusive right-to-sell listing, the listing agent has a fiduciary duty to you to use “due diligence” to get your home sold according to the listing terms.

Purchase Bob Bruss reports online.

That means the listing agent must do at least what is normal and customary, such as placing your listing in the local MLS (multiple listing service), listing your home on the Internet at www.Realtor.com, having your home open for a weekday tour by local realty agents, and advertising your home in the newspapers and other media.

In addition, he might hold weekend open houses, send mailers to neighboring homeowners (who often have friends and relatives who want to move into the neighborhood), and print brochures.

Proving a lack of due diligence by a real estate agent, thus entitling you to cancel the listing, is very difficult. Of course, if the agent didn’t do any of these things listed above, then you could cancel the listing for lack of due diligence.

You say you decided not to sell your home. But in the same sentence you said you want to get out of the listing contract and hire a better agent.

Most agents will allow you to cancel a listing if you decide not to sell. However, they usually include a clause stating that if you decide to sell within 180 days, you will re-list with the same agent.

I suggest you have a frank discussion with the listing agent and the office brokerage manager to resolve your dissatisfaction. Perhaps your listing can be transferred to a better agent within the same firm to get your home sold.

HOW LONG DOES TENANT-AT-WILL HAVE TO VACATE?

DEAR BOB: I used to care for my late father in the house where I now live. After his death, the house was willed to my sister. It recently sold. How long do I have to vacate? Can they come and change the locks? My sister notified me verbally to move out. –Robert N.

DEAR ROBERT: Legally, you are known as a tenant-at-will, or possibly a tenant-at-sufferance if you aren’t paying any rent.

Depending on state law where the house is located, you should be given at least a 30-day written notice to vacate. That presumes you don’t have a written lease for a stated term.

If you fail to vacate after receiving a written notice to move out, the new owners can evict you through a court unlawful detainer proceeding. However, you don’t want to wait that long to move out. Start looking now for another place to live. For more details, please consult a local real estate attorney.

GETTING RID OF A LIFE TENANT ISN’T EASY

DEAR BOB: When our father died about five years ago, his will left his house to his five children from his first marriage, including me. But his will gave his second wife a life estate in the house until she dies or remarries. She has not remarried, but she is living in the house with her live-in boyfriend, who might as well be her husband. They are not maintaining the house very well and it looks like a dump. It needs a new roof, but instead of installing a new one, she has put an ugly blue tarp on the roof. She failed to pay the property taxes. When I went to see an attorney to get her out, he notified her, and the boyfriend paid the property taxes. Is there anything we heirs can do before she destroys our inheritance? –Byron R.

DEAR BYRON: Getting rid of a life tenant is never easy. However, failure to pay the property taxes, or committing physical “waste,” are valid legal reasons to terminate a life estate.

From your description, the life tenant’s failure to repair or replace the roof is waste, which can be legal grounds to terminate the life estate.

If she fails to pay the property taxes again, and if she hasn’t fixed the roof, it might be the evidence you need to bring a legal action to terminate the life tenancy. Perhaps you should find a more aggressive real estate attorney.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010. or by credit card at 1-800-736-1736 or instant Internet 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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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Inman News

Maintaining a good relationship between tenants and landlords can be maddening. How to avoid walking the tension high wire? By noticing maintenance issues that crop up and reporting them before serious damage or danger takes root. Communicating clearly to the landlord about repairs in writing is always a good idea. What types of problems should tenants typically watch for?

1. Start with your smoke alarms. Is yours chirping? Don’t just yank the offending noisemaker from the ceiling or remove the batteries to quiet things down. Smoke alarms often make a chirping sound every few minutes as they get closer to their last draw of power. Some models make noise more persistently as the problem gets worse. Noisy alarms are a sign of trouble and letting the landlord know is vital.

2. Something smelly in the air? Strange odors are always a cause for concern. Odors can be caused by anything from a backed-up sewer to a deceased varmint behind a wall. If you smell something out of the ordinary, don’t go hunting for the source. Let the landlord or his or her crew work on the problem.

3. Wall or ceiling discoloration is also a concern. A variety of conditions can cause paint changes, including mold, mildew and water seepage. Always report peeling paint to the owner and avoid tampering with the loose pieces. Peeling paint is caused by a variety of reasons, ranging from excess moisture in the room to poor paint preparation. Ceiling leaks are often caused by roof problems, which should be called in to the landlord immediately.

4. Electrical. Never overload light fixtures with high-wattage bulbs, such as 100-watt bulbs in 60-watt fixtures. Most fixtures are stamped with the maximum wattage rating, and should be strictly adhered to in order to avoid fire or fixture damage. Previous wattage errors are easy to spot; the base may be melted or a black area may surround the fixture. Don’t play roulette if the fixture is damaged and report promptly.

5. Plumbing. Because every rental has some sort of running water in the place, it’s the most common source of problems. Dripping faucets are to be noted, and avoid over hand-tightening when faucets start to drip. An overly tightened faucet can strip the underlying cartridge and cause more damage than a simple rubber change out. A toilet making nonstop running-water sounds may seem like a small problem, but the amount of water wasted is vast.

6. Clogged drains should be reported quickly, too. Left unreported, clogs get worse and can run up higher plumbing costs as the clog gets tighter and deeper into the plumbing line. Garbage disposals left unused or with standing water can rust out and require replacement. Using drain cleaners may seem like a quick fix, but they can corrode and damage the plumbing system, causing more trouble. Replacing pipes may not be your problem, but the hassle, noise and inconvenience of fixing them may be laid at your doorstep if the system needs inordinate attention.

7. Appliances. Has the shelf cracked on the refrigerator or the knob popped off the stove? If it’s your fault, you may want to browse online and find a replacement part. If professional help is needed, offer to split the cost.

8. Doors and windows that stick. Sometimes doors and windows swell more severely when the weather changes patterns, leaving you out in the cold. If the door is always sticking, rain or shine, that may be a job for Super Sander. Let the landlord call in the hero.

Sliding doors often accumulate dust and debris in the tracks, making them sluggish and risking breakage when the door gets pulled one way and the mirror goes another. Regular vacuuming or sweeping should keep you on track. If the door continues to stick, don’t ignore it, especially with heavier mirrored doors.

9. Wobbly locks. Lock screws are usually on the inside portion of the lock and tightening the loose screw just takes a minute; getting locked out when the lock falls on the floor is a bit more time consuming. Shaky locks are easy to fix, but let the landlord know if you want to do it yourself.

Whatever the situation, be sure to identify and explain the problem thoroughly, giving a visual explanation, such as “the left side of the master bedroom by the window has a brown, dinner-plate-sized roof discoloration.” If you write “ceiling has a stain” the landlord may dismiss the problem without investigating. Notifying the landlord or manager in writing can avoid hassles and possible danger for both of you in the future.

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

Copyright 2007 Helene Lesel

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.

DEAR BOB: I own two houses in trust. One is in West Virginia. When my husband moved out of that house, he signed the papers to transfer title to me. I now live there for several months each year, but it is not my permanent residence. I cannot claim a homestead exemption there because I claim a Florida homestead. Can I use the tax-free $250,000 exemption on the West Virginia house if I lived there 24 months during the past five years? –Elinor T.

DEAR ELINOR: I presume by holding title “in trust,” you mean in a revocable living trust. If title to the residences is held in any other type of trust, such as an irrevocable trust, you are not eligible for the principal residence sale tax benefits of Internal Revenue Code 121.

Purchase Bob Bruss reports online.

For the sale of the West Virginia house to qualify for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 if your spouse also qualifies and you file a joint tax return), you must have owned and occupied it as your principal residence an “aggregate” 24 of the 60 months before its sale. The 24 months need not be continuous.

However, it must truly be your principal residence during your 24-month occupancy time. If audited by the Internal Revenue Service, you must be able to prove principal residence indications such as a local bank account, car registration, driver’s license, voter registration, employment, and filing income tax returns from that address.

From your description, especially since you have a Florida homestead, it sounds like the West Virginia house doesn’t qualify for IRC 121 principal residence sale tax savings benefits. For more details, please consult your tax adviser.

CAN CONDO DIRECTORS HOLD AN INQUISITION OF NEW BUYERS?

DEAR BOB: I recently purchased a condominium. I received the condo association documents, along with an application to fill out. I was shocked as I own two other condos and was never asked to fill out any application to purchase a condo. This is not a cooperative apartment. I feel some of the questions are intrusive, such as what is or was your last occupation, household income, and your net worth? Then it is up to the condo board of directors to accept or deny my application. I presented my financial data to the mortgage company, but I do not feel this is the business of the condo board who are my future neighbors. Shouldn’t the real estate agent have warned me about this? –Shirley B.

DEAR SHIRLEY: Yes, the real estate agent should have clearly shown on the MLS (multiple listing service) information that buyers are subject to approval by the condo association board of directors.

Like you, I have never encountered a situation like this. But I have heard there are a few condo associations that hold such inquisitions of new condo buyers.

Frankly, I wouldn’t want to buy a condo in that complex because it could make the condo very difficult to resell in the future.

A major reason why cooperative apartments can be so hard to sell, and why they sell for less than comparable condominiums, is most co-op purchases are subject to approval by the board of directors, which doesn’t have to give any reason for rejecting a buyer applicant.

MUST HEIR WAIT TO TAKE TITLE UNTIL PROBATE IS COMPLETED?

DEAR BOB: I am inheriting my late mother’s home. It is currently in probate. Is it best to wait for probate to finish to take title? Are there any tax consequences to taking title before or after probate is completed? –Lorraine T.

DEAR LORRAINE: You can’t receive marketable title until the Probate Court approves the title transfer to you. If there are income or estate taxes to be paid for the decedent, those taxes must be paid by the estate before estate assets can be distributed to the heirs.

However, the probate estate need not be closed before property titles can be transferred. Title to the home can be transferred to you by the Probate Court although the estate might remain open for further proceedings on other estate matters. Some estates remain open for many years.

Now you know why I recommend property owners transfer title to their revocable living trusts so, after their demise, the assets can be promptly distributed without probate costs and delays. Presumably your mother died without a living trust or a will so probate proceedings were required. For full details, please consult a probate attorney.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet 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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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Inman News

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.

In early August 2000, homeowner Nancy O’Brien received a marketing call from Aames Funding Corp. She expressed interest in refinancing her home and paying off $15,000 in credit card debt.

Aames then arranged two mortgage loans for her to pay off the $83,492 first mortgage, consumer debt, property taxes, and transaction charges, for a total of $104,662.

Purchase Bob Bruss reports online.

On Aug. 31, 2000, O’Brien received a first mortgage loan for $79,500 from Aames. Associates Home Equity Services Inc. funded the second mortgage loan on Sept. 6, 2000, to bring the total loans to $104,662.

The Aames loan included a Truth in Lending Act (TILA) disclosure giving O’Brien until Sept. 5, 2000, to change her mind and cancel the Aames loan. She did not exercise her TILA right to cancel the Aames loan.

However, on July 8, 2003, O’Brien notified Aames and Countrywide Home Loans Inc. (which acquired the Aames mortgage) that she wished to rescind the Aames loan.

On Aug. 29, 2003, O’Brien filed this lawsuit for return of all money paid and for damages, alleging violations of TILA disclosures because the Associates second mortgage, which was part of the transaction, was not funded until Sept. 6, 2000.

If you were the judge, would you allow O’Brien to rescind the Aames mortgage three years after obtaining the loan?

The judge said no!

Congress enacted TILA to avoid the uninformed use of credit, the judge said. TILA requires lenders to disclose to the borrower information about the loan, such as interest rate, monthly payments, and total payments over the life of the loan, he explained.

TILA includes a notice allowing the consumer to rescind the loan within three business days after consummation of the transaction, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever occurs last, the judge emphasized.

“If the creditor fails to provide the required notice, the right of rescission continues for up to three years after the consummation of the transaction,” the judge noted.

On Aug. 31, 2000, Aames provided O’Brien with a TILA written notice of her right to rescind the Aames loan by midnight of Sept. 5, 2000, he continued, but she failed to cancel.

Now she argues she had up to three years to rescind because the Associates second mortgage was not funded until Sept. 6, 2000, he noted.

This fact is immaterial because O’Brien consummated the Aames loan on Aug. 31, 2000, the TILA statement correctly gave her until Sept. 5, 2000, to rescind, and she did not do so, the judge ruled. Therefore, O’Brien cannot rescind the Aames mortgage three years later, the judge concluded.

Based on the 2005 U.S. District Court decision in O’Brien v. Aames Funding Corp., 374 Fed.Supp.2d 764.

(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 2007 Inman News

Q: My backyard consists mainly of a concrete slab patio and a retaining wall made from concrete blocks. It’s so gray that even the trailing rosemary and bougainvilleas I’ve planted look washed out.

I was considering painting the patio with thinned-out paint in a terra-cotta color (something to coordinate with the painted stucco on the house). Would this be a viable option or something I should leave to the professionals? How would I make sure that the paint wouldn’t wear off? I’ve seen patios painted before where the paint starts to peel and bubble.

A: It’s time to put a little color in your life, and you can do it yourself — no pros needed.

The thinned-out paint look you’re after will be handsome. The color and texture will not be uniform because your patio concrete is porous. You’ll get a mottled effect that we think is attractive.

Your reservations about painting the patio are well founded, as painted concrete ultimately chips and flakes. Once the chipping process starts, there’s no stopping it. Unless the patio was poured over a vapor barrier — which is almost never the case — groundwater migrates up through the slab via capillary action. The sun bakes the surface of the concrete, causing the moist concrete underneath to warm. The bond between the paint and the concrete breaks, and the paint flakes off.

Painted concrete can also be a safety hazard. It’s slippery. A skid-resistant surface can be achieved by adding fine sand or crushed nutshells to the paint. But it’s difficult to get a uniform finish with these additives.

Many manufacturers have taken this a step further, adding various types of aggregate to create textured epoxy paints. This makes application easier, but the flaking problem remains.

We think you’re on the right track as to the choice of materials for the effect you want. But thinned-out paint isn’t our material of choice. What you want is a concrete stain.

Although you don’t mention painting the cinder-block wall, we recommend that you paint the wall to provide a completely finished look to your backyard. Concrete staining and block-wall painting are two separate processes. Here’s how we’d approach each:

Last summer Kevin spent some time with a representative from Duckback Products, a Chico, Calif.-based company. At the time he was researching a story on decking and was interested in its products for wood.

During his conversation with the rep, the subject turned to concrete. Kevin noticed that Duckback also produces a concrete stain. Having a gray patio of his own, his interest was piqued. The company says this stain is water soluble, easy to use, and cleans up with soap and water. The stain comes in 10 colors, including terra cotta.

Although safe, we suggest that normal precautions be taken at all stages when applying the product. Wear long pants, sturdy shoes, a long-sleeve shirt, gloves, a mask or respirator, and eye protection.

Application is a three-step process: Etch (roughen) the concrete with an etching solution; clean and neutralize the etching solution and allow the concrete to dry; then apply the stain.

For more information and to find retailers carrying these products go to www.superdeck.com.

Painting the cinder-block wall requires a different procedure. First loosen the vines from the wall and lay them on the ground. No need to cut them. Next, pressure-wash the wall to remove dirt and plant debris, and to provide a clean surface for the paint.

Once the wall is dry (give it a day or two in warm weather), apply a heavy coat of block coating. Block coating has the thickness of marshmallow creme and effectively fills in the voids and reduces the porosity of the concrete block.

It’s possible that retailers know this material by another name. Just describe what you intend to do and they should be able to supply you with the right product.

Finally, paint the wall with a good-quality latex paint. One coat might do it, but more likely it will take two.

Give the paint three or four days to dry, then replace the vines on the wall. When you’re done, you’ll have a colorful and clean-looking yard.

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

Copyright 2007 Bill and Kevin Burnett

Trying to sell a home in a neighborhood where nobody is buying can be an extremely trying time for a seller. Foreclosures are on the rise, fueled by subprime loans that never should have been made and overeager investors betting on dreams of continued double-digit appreciation. Sadly, we are now feeling the results of too much credit chasing poor or borderline borrowers.

Yet people who default on their homes still need a place to live, and many of them are well-meaning consumers who hold down decent jobs. While they have shown they are not able to pay the huge monthly payments that come with high-interest-rate loans, they are capable of paying a fair monthly housing expense.

Three years ago, Tom DiMercurio, a veteran of 37 years in the foreclosure business, was the first to label and predict a “foreclosure tsunami” for several areas of the country. While he says many markets have yet to hit rock bottom, he also believes this is a great time for long-term investors to begin picking up single-family homes for their portfolios. However, potential buyers must be genuine players — not speculators — and be prepared to do factual research if they are interested in purchasing an additional piece of real estate in a specific area.

“The residential rental market in places like Denver has been very strong because there have been so many foreclosures,” DiMercurio said. “Indianapolis also has been in a foreclosure mess, and everybody is starting to understand how deep the problems are in Detroit.

“But anybody who wants to buy a property in addition to their primary residence really needs to go back to basics. The value of a piece of real estate must be based on the net income it can produce. If it’s sustainable with a modest — yet realistic — down payment, then it becomes a viable candidate for investment.”

Cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by lenders, a flip-and-run mindset for speculators and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan. While the equity gained by rising home prices can cover many ill-conceived loan mistakes, a flat or sinking market only compounds those lending problems.

Think about it … when a buyer can get 100 percent financing on an investment property with stated income and a lousy credit score, it becomes a road map for trouble — especially in a flat market.

“The buyer has got to have some ‘skin’ in the deal,” DiMercurio said. “The subprime thing is just the frosting on the cake. Sure, there are people with low credit scores that should not be given loans, but there are many others who are simply putting nothing in to the transaction because some lender has been willing to do it. Well, this subterfuge has been discovered, and the real estate industry will be paying a heavy price for the next three to five years.”

Historically, the main reasons for default and foreclosure of a primary residence were divorce, loss of job, death or serious illness. Now, we have added overborrowing and the residue of having foreclosures in the area. Too many for-sale signs in the neighborhood can take their toll and often reduce the amount of equity for nearby homeowners. While long-term owners simply can stay put and usually ride out a cyclical housing downturn, the stigma of a “down” district can be felt immediately when a job transfer demands a quick sale.

No-money-down investment properties accelerate and deepen the problem. When a buyer purchases an investment property with very little or no money down, there’s no margin for error when the renter bolts in the middle of the night because of job loss or a death in the family. The renter was basically paying the owner’s mortgage, taxes and insurance with the monthly rent check. When no new renter surfaces and the place goes vacant for a few months, the owner quickly tires of coming out of pocket with the mortgage for the investment home and simply walks away from the deal.

If you are looking to pick up an additional piece of real estate, be prepared to put some cash into the deal to make it sustainable. Determine if employment in the area will support your monthly mortgage, taxes and insurance. If you are looking to pocket short-term profits — cut and run — there’s a good chance you’ll be adding fuel to an already hot fire.

To get even more valuable advice from Tom, visit his Second Home Center.

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

Copyright 2007 Tom Kelly

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.

DEAR BOB: I had a contract to sell my home. I gave the buyer seven days to bring me an acceptable mortgage letter from a bank, but he presented a letter from a mortgage broker indicating final approval of his loan was subject to “underwriting.” His bank returned his $1,000 deposit check for insufficient funds. Can I legally terminate his contract? –Jorge S.

DEAR JORGE: From your description, it sounds like your buyer is in breach of the sales contract. That letter from a mortgage broker indicating his mortgage approval is subject to “underwriting” is worthless.

Purchase Bob Bruss reports online.

Today’s smart home buyers get preapproved in writing by an actual lender before shopping for a home. If your buyer had done that and shown you the lender’s approval letter or certificate, you could feel confident he’d obtain a mortgage.

Although mortgage brokers can obtain such preapprovals for their borrowers, because they are not the actual lenders, mortgage brokers can issue only prequalification letters, which are nonbinding on actual lenders.

Especially because your buyer’s $1,000 deposit check bounced, if I were in your shoes, I would feel confident canceling that sale for breach of contract. For full details, please consult a local real estate attorney.

ANOTHER DISADVANTAGE OF GIFTING A PROPERTY BEFORE DEATH

DEAR BOB: In a recent article, you answered a widow’s question about gifting her property to her daughter and son-in-law. But one tax consequence you failed to mention, which snares many people, is the fact that by gifting real estate before death to a child, the child loses the opportunity to receive a stepped-up basis to market value upon the donor’s death –Tim F.

DEAR TIM: Shame on me. How could I have forgotten that major benefit of inheriting real estate instead of receiving it as a gift before death?

A big disadvantage of a property gift is the donee takes over the donor’s adjusted cost basis. In the situation you describe, the mother presumably had a very low cost basis if she owned the property for many years. The gift donee takes over that low basis.

However, when real estate or other assets are instead inherited, the heir receives title by inheritance with a new stepped-up basis of market value on the date of the decedent’s death. For more details, please consult your tax adviser.

MUST HOMEOWNER FORM A CORPORATION TO RENT A HOUSE?

DEAR BOB: Do I need to form a corporation to rent my single-family house as an investment property? My son says “yes.” –Christina K.

DEAR CHRISTINA: I’m sure your son is a fine young man, but he is mistaken on this issue. Landlords do not need to form a corporation before they can rent their property to tenants.

Millions of property owners rent real estate to which they hold title in their own names without forming a corporation. Perhaps your son was thinking that forming a corporation to hold title to the rental house would limit your liability.

But forming a corporation is not necessary. Nor is it a good idea, especially because holding title in a corporate name forfeits your rental property income tax benefits.

However, before renting that house to tenants, please consult your insurance agent to be certain you have adequate liability insurance. You need a rental property owner’s insurance policy, not a homeowner’s insurance policy. With adequate liability insurance, you can rest easy and forget about all the drawbacks of owning corporate real estate. For more details, please consult a local real estate or tax attorney.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet 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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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Inman News

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.

If you are just starting your real estate investment career and want to learn all the benefits realty investments offer, first read “Real Estate Investor’s Checklist” by longtime investor Robert Irwin. Rather than being a dull book about real estate investments (there are lots of those), this is a lively checklist of important topics every realty investor should consider before investing or deciding what type of investment property is best.

When I first began reading this unusual book, I thought to myself, “This seems like a dumb format.” But after reading several chapters, I realized what a brilliant idea it is to have boldface questions, followed by brief answer explanations of a paragraph or two. If a topic doesn’t interest you, just skip ahead to the next topic in which you are interested.

Purchase Bob Bruss reports online.

This new book should be read with an open mind because it begins slowly with routine topics, such as how realty investors earn their profits, getting started, and evaluating the local real estate market. Although the book seems aimed at investors in single-family rental houses, Irwin doesn’t hesitate to lightly tackle other investment types such as apartments and commercial buildings.

The author asks many routine investor questions about important subjects, like the neighborhood, property condition, and potential for a profitable rental.

The one chapter that is either the book’s best or worst is “Do You Know the Property’s True Value?” Irwin, a longtime, very experienced real estate investor, places heavy emphasis on the “gross income multiplier” to determine a property’s value. He surely knows the major pitfalls of this method, namely its failure to consider a rental property’s expenses, yet he doesn’t warn why gross income multipliers should be used for nothing more than pre-qualifying a property or discarding it from further consideration.

But an especially valuable chapter, which even experienced investors might overlook, explains the importance of transaction costs when purchasing investment property. The author emphasizes expenses such as mortgage loan costs, title insurance, and attorney or escrow fees.

Irwin also highlights the property seller’s typical sales costs, especially the real estate agent’s sales commission, unnecessary broker’s transaction fee (which Irwin labels a “garbage fee”), and other incidental expenses.

As an experienced real estate negotiator, the author explains how buyers and sellers should think about cutting their transaction costs, especially by attempting to shift these expenses to the other party.

Locating the best investment properties receives heavy emphasis. Irwin even explains how to profit from the foreclosure market, especially for houses, by purchasing before or after the foreclosure auction sale.

However, the book is not without a weak chapter. Although Irwin surely knows the tax benefits of investing in real estate, especially Starker delayed tax-deferred exchanges, and how to maximize investment tax deductions, the tax chapter contains several errors that, if relied upon, could harm investors.

For example, he says an investor must complete a Starker exchange within 120 days (the tax law allows up to 180 days). Also, he says a residence acquired in a tax-deferred exchange must be occupied by the owner as a principal residence for five years before it can qualify for the $250,000 or $500,000 sale tax exemption of Internal Revenue Code 121. The correct information is, although property acquired in an exchange must be owned five years before qualifying, owner-occupancy is only required for 24 of the 60 months before sale.

Chapter topics include: “How Will You Make Your Profit?” “What Do You Need to Get Started?” “Did You Evaluate the Market Before Entering?” “Will the Property Make a Suitable Rental?” “What is the Condition of the Property?” “Do You Know the Property’s True Value?” “Where Do You Find Good Investment Homes and Properties?” “Do You Have a Good Agent?” “Do You Know What is Involved in Being a Landlord?” “Have You Lined Up Your Financing?” and “Flip Versus Serial Investing.”

As the title implies, this is a very complete checklist of important questions to be answered by prospective real estate investors. The provocative questions should raise “red flags” in the reader’s mind about possibly overlooked pre-investment considerations. Despite its slight defects, such as the tax chapter, on my scale of one to 10, this excellent real estate investment book rates a solid 10.

“Real Estate Investor’s Checklist,” by Robert Irwin (McGraw-Hill, New York), 2006, $18.95, 182 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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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Inman News

Dear Barry,

I bought a home six months ago. Last week, while running down the stairs to my basement, the bottom step literally gave way under my foot. Thankfully, it wasn’t one of the top steps. When I took a closer look, I found that all of the steps were separating from the stringers and were only held up by the nails that were driven into the ends of the treads. Shouldn’t this have been reported by my home inspector? –Marc

Dear Marc,

The physical condition of a staircase is definitely within the scope of a home inspection, largely because of the hazards posed by defective stairs. Stair conditions routinely inspected include the relative dimensions of the treads and risers, the height, stability and design characteristics of handrails, signs of physical damage, and (as with your basement stairs) substandard methods of construction. Inadequate attachment of treads, therefore, should have been disclosed by your inspector.

When stairs are substantially constructed, treads are attached to the side supports (stringers) in such a way as to resist separation due to sideward stresses. When treads are merely end-nailed, separation is likely to occur, posing a trip hazard for persons using those stairs. Consider your basement staircase out of bounds until adequate repairs have been made by a qualified contractor or carpenter.

Dear Barry,

We bought our home about one year ago. At the time, our home inspector found some minor defects, but nothing was mentioned about black mole. After moving in, we noticed some black stains in the closets. But then the rainy season came, and we found black mole on most of the upstairs walls, especially in the corners. What upsets us most is that the former owners never mentioned a word about black mole. In fact, their disclosure statement said everything was OK. We’ve tried washing the mole off, but it just returns. What can we do legally, and how do we get rid of the mole? –Renee

Dear Renee,

Mold (not “mole”) has been widely publicized as a significant health hazard and should have been disclosed by the sellers, assuming that they were aware of it. Your discovery immediately after closing escrow indicates that they should have known. If they deny knowledge of any mold infection, you would have to prove that they knew about it, and that could be very difficult.

Mold disclosure is generally regarded as outside the scope of a professional home inspection and is routinely disclaimed in most home-inspection contracts. However, when evidence of mold is unavoidably visible on exposed surfaces, failure to make some manner of disclosure is hardly justifiable for a competent home inspector. The least an inspector could say would be, “Black stains noted on upstairs walls. A professional mold survey is recommended.”

The growth of mold is caused by excessive moisture conditions, often accompanied by a lack of adequate ventilation. What you presently see on wall surfaces may be an indication of additional mold within the wall and ceiling cavities. Therefore, mere cleaning is not the way to resolve the problem. To determine the extent of the mold infection in your home, have a mold survey performed by a qualified professional.

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

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

Copyright 2007 Barry Stone