Real Estate in Steamboat

If you or someone you know wants to start investing in real estate but you aren’t sure what is involved, “Prepare to Profit” by Sheri Alford and Dr. Ahmet Ucmakli is a good beginner’s overview book. It provides an easy-to-read summary of the major benefits, and a few pitfalls, of owning realty investments.

Alford, a real estate agent, and Ucmakli, a physician, are investors who share their realty investment experiences in an organized format. Along the way, they use some of their real life examples to make the topics more interesting. The examples often emphasize mistakes not to make, such as renting to unqualified tenants who don’t pay the rent and leave the property trashed.

Purchase Bob Bruss reports online.

Emphasis is placed on establishing a real estate investment team, such as a top realty agent, title insurance or escrow officer, property manager, CPA, bookkeeper, real estate lawyer, home inspector, appraiser and insurance agent. They even mention a “chattels appraiser,” whatever that is. The authors briefly explain attributes of people to select and individuals to avoid.

Words to best describe the book are superficial and nonspecific. Although the authors strongly criticize the get-rich-quick real estate gurus from TV infomercials and realty seminars, they don’t offer much in the way of innovative real estate finance or profit methods. The book would have been more valuable if Alford and Ucmakli shared their profit methods, other than hoping their properties appreciate in market value.

“Given all the tasks mentioned above, it is difficult to believe that some authors and gurus suggest that success is possible as a part-time real estate investor. If you only have one or two properties, then part-time is feasible. However, as the number of your properties grows, so do your responsibilities, making it much more difficult to spend time on other things, like accumulating more properties,” the authors say. Yet they appear to be part-time investors themselves.

Although the book provides a very basic summary of the benefits of real estate investing, some statements make an experienced investor cringe because the authors didn’t explain further.

For example, in the chapter about selling an investment property, the authors say: “If you reach that one-year-and-one-day milestone, certain costs can legally decrease your profit on paper, thus further reducing your tax burden.” What costs are they talking about? I would like to know.

Another example occurs when Alford and Ucmakli attempt to explain Internal Revenue Code 1031 tax-deferred exchanges. They say, “Even more recently, it has become legal to 1031 equity from a property into a tenancy-in-common.” Again, the authors forgot to explain what they mean as they lapse into using real estate lingo in a book for beginners.

Chapter topics include “Honest Advice”; “The Benefits of a Team”; “How to Avoid Getting Crabs”; “Why Real Estate?” “The Purchase Team”; “The Management Team”; “The Sales Team”; “Keeping Your Sense of Humor”; “Deflecting Naysayers and Doomsayers”; and “House of Knowledge.”

This should have been a great introductory real estate investment book. Instead, it is very basic, sometimes misleading, lacking in details, and more negative than positive. The authors clearly intended to share their real estate knowledge to inspire readers to invest in real estate, but they barely explained the basics and left out the details. On my scale of one to 10, this disappointing book rates only a five.

“Prepare to Profit: Your Guide To Creating Wealth In Any Real Estate Market,” by Sheri Alford and Dr. Ahmet Ucmakli (Tam Tam Press, Murrieta, Calif.), 2007, $15.95, 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 2007 Inman News

DEAR BOB: I am a loyal reader who should have taken your advice. When my adjustable-rate mortgage was recently “recast” to current interest rates, the unpaid interest was added to the mortgage principal balance. I now owe about 110 percent of my home’s market value. I recently lost my tech job, which paid over $100,000 annually. Do I have any recourse to convince the mortgage lender to do the right thing? –Rick C.

DEAR RICK: You enjoyed the low monthly mortgage payments for a year or two after obtaining that mortgage. When the mortgage terms provided for a “recast” to a higher interest rate and larger monthly payment, the lender added the unpaid interest to your mortgage balance. This is called “negative amortization” because you owe more than you borrowed.

PurchaseBob Bruss reports online.

If you are unable to make the higher mortgage payments, ask your lender if you can sell the house for its current market value as payment in full on the mortgage. This is called a “short sale.” Most lenders will approve a short sale only if you are behind in monthly mortgage payments with little hope for catching up.

You should be aware if the lender approves a “short sale,” after the house sells you will receive an IRS Form 1099 from the lender showing the amount of unpaid, forgiven mortgage debt. This debt relief is taxable income to you.

For example, if you owe $200,000 but the mortgage lender approves a $180,000 short sale, your 1099 form will show $20,000 taxable income to you. For more details, please consult your tax adviser.

INDIVIDUAL CAN’T PLACE A LIEN WITH THE CREDIT BUREAUS

DEAR BOB: Back in 1999 my husband and I won a $130,000 judgment in an assault case. In 2006 we located the defendant and his wife living in Las Vegas. We placed a foreign judgment lien on his home. He then filed bankruptcy to have the lien discharged. But the judge refused to remove the lien and the bankruptcy case was dismissed. How can judgment creditors like us go about placing the lien with the three major credit bureaus? –Clare C.

DEAR CLARE: An individual can’t place a lien with the credit bureaus. If your judgment lien was properly recorded in Las Vegas against the defendant-debtor, and any other place where the debtor owns real estate, eventually he will try to sell that property.

Then your judgment will have to be paid so he can deliver marketable title to the buyer. For more details, please consult a real estate attorney where the debtor owns real estate.

ADD HOME-IMPROVEMENT COST TO YOUR HOME’S BASIS

DEAR BOB: Please settle an argument I have with coworkers. If I keep receipts of my home-improvement costs, can I use them to increase the cost basis of my house and then take the $250,000 tax exemption on top of that? –Steve P.

DEAR STEVE: Yes. The adjusted cost basis for your home is its original purchase price, plus most closing costs, which were not tax deductible in the year of purchase, plus the cost of capital improvements added during your ownership, minus any depreciation you deducted for business use of the residence, such as for a home office.

You will still be entitled to use the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple) if you own and occupy the home at least 24 of the last 60 months before its sale. For full details, please consult your tax adviser.

The new Robert Bruss special report, “Pros and Cons of Investing in Rental Houses and Condominiums,” 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

Dear Barry,

I’m getting ready to sell my home and would like to hire a home inspector before I put it on the market. It seems that a pre-marketing inspection would give me a better idea of needed improvements before I sell. Is this wise or not? –Marian

Dear Marian,

Your approach demonstrates a wisdom not commonly realized by sellers. Buyers typically hire the home inspector after the purchase contract has been signed. The inspector provides a list of defects, and then the buyers ask the sellers to make repairs, to reduce the price, or sometimes to cancel the sale. When you provide a home inspection report prior to signing the contract, you avert this process of renegotiation.

Essentially, there are three benefits for sellers who hire a home inspector prior to marketing a property:

1. The inspection report informs you, in advance, of any significant defects that might need attention and that could adversely affect your chances of selling the property. It affords you the opportunity to make repairs prior to sale.

2. The report enables you to provide a more thorough and complete disclosure of the property’s condition. This lessens the likelihood of legal problems after the sale, when undisclosed defects might then be discovered.

3. The report provides the best basis for an as-is sale, if that is what you prefer. You can decline to make repairs while fully informing the buyers of the conditions that need repair.

Sellers would do themselves a great service by taking this proactive approach to the disclosure process.

Dear Barry,

I had my windows replaced about three years ago. The company that installed them is no longer in business. Recently, another window contractor said that the patio door and some of the windows are installed incorrectly because they are on the weather-beaten side of the house that gets most of the wind and rain. I’ve never had any leaking or other problems with any of the windows and am wondering if I should be concerned about the window guy’s opinion. What do you think? –Regina

Dear Regina,

Who ever heard of installing windows differently when they are on the weather-beaten side of a building? And how would a window installer know which portion of a building faces the weather, especially if the installation occurs on a bright, windless summer day?

Windows should all be installed in a manner that maximizes weather resistance. If that is not so, then perhaps contactors should install windows in a compromised manner when they face away from the oncoming weather. That, of course would be foolish, so don’t be persuaded by the opinion of this window guy. But just to be sure, hire another window company to evaluate the installation in question.

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

DEAR BOB: My wife and I are considering the sale of our home. We have noticed the median sales prices of houses where we live have declined about 3 percent in the last 12 months. However, before that, home prices were going up anywhere from 5 percent to 11 percent annually. We would hate to lose our equity by not selling now. But then she brought up the question “Where would we move?” as we are not yet ready for “the old folks home.” How important are these sales price statistics and trends? –Gabe R.

DEAR GABE: Please don’t be misled by the median sales price statistics. They can be very misleading. Median price means an equal number of homes sold above and below the median sales price in your area.

PurchaseBob Bruss reports online.

Equally important, don’t confuse median sales price with the average sales price. Average sales price means the number of home sales divided into the total sales prices of all homes sold during a specific time period.

Lastly, when you hear home sales are down, be sure to check what that means. Are actual sales prices down? Compared to what? Or is the volume of home sales down? Compared to sales volume last month or a year ago?

Both median and average sales prices are meaningless unless they apply to your specific neighborhood. It is very easy for the median and average sales prices for a city to be skewed by a few very expensive or very inexpensive home sales.

The higher-priced luxury home sales prices tend to fluctuate wildly because there are few sales in that price range so one or two expensive sales can have a major effect on median sales price statistics.

Also, you need to know who supplied the numbers. Do they reflect just the home sales involving homes listed in the local MLS (multiple listing service)? Or do they include all local home sales, including FSBO (for sale by owner) where no realty agents were involved?

In other words, be sure you are comparing apples to apples, not apples to oranges. That means you need to know recent home sales (not asking) price trends for comparable homes like yours in your neighborhood. Don’t consider similar homes more than a mile away from your home unless there are no closer comparable sales.

WHAT IF HOMEOWNER ASSOCIATION WON’T ENFORCE RULES?

DEAR BOB: I bought into a deed-restricted gated community. But the homeowner association won’t fix the gates or enforce the CC&Rs (covenants, conditions and restrictions). What are my options? –Mary S.

DEAR MARY: One alternative, of course, is to sell your home and move to an area you like better. However, if you like the community but it isn’t been maintained up to standard, selling your home should be a last choice.

The easiest solution is for you and other like-minded neighbors to become involved with the homeowner association. Volunteer to be on a committee, perhaps the buildings and grounds or the long-range planning committee. Participate in the homeowner association meetings by politely suggesting better maintenance and enforcement of the CC&Rs.

If that doesn’t work to your satisfaction, get together with your neighbors to run a new slate of board-of-director candidates at the next annual election. The new directors can then see that the premises are maintained properly and the CC&Rs are enforced.

As a last resort, another alternative is to sue the homeowner association for an injunction to enforce the CC&Rs. But I do not recommend this because lawsuits usually are very expensive, take a long time, and they often don’t resolve anything. If you lose, you may have to pay the attorney fees for the homeowner association defending your lawsuit. More details are available from a local attorney specializing in homeowner association law.

PROS AND CONS OF DEEDING HOUSE TO CHILD

DEAR BOB: My father, 77, is slowly “falling apart” and he knows it. His doctor says it is not Alzheimer’s disease but probably just plain old dementia. Dad lives alone in his house for which he paid about $37,000. Today it is worth at least $500,000. My husband thinks I should ask him to deed his house to me now, as I am his only offspring. But I am concerned I would own a house without any rental income to pay expenses (dad is on a very limited income so I pay his property taxes and other major expenses). If he has to go into a convalescent home, he would probably have to go on welfare. Friends tell me to get the house out of his name so the state can’t attach it. What is your advice? –Audrey H.

DEAR AUDREY: If your dad has to go into a convalescent or other type of care paid for by the state, such as Medicaid, depending on the circumstances there are provisions for the state to attach his assets or those he gave away without adequate consideration.

If your dad gives his house to you now, subject to a life estate so he can remain living in it, your basis will be the same as your father’s $37,000, plus the cost of any capital improvements he added.

However, if you instead inherit the house when your dad dies, you will receive a new “stepped-up basis” to market value on the date of death. If that stepped up basis is $500,000, your capital gains tax will be only on the sales price exceeding that amount. Ask your tax adviser to explain further.

DOWN-TRADE WILL BE PARTIALLY TAXABLE

DEAR BOB: Can I do an Internal Revenue Code 1031 tax-deferred exchange by selling my investment property for $700,000 with $350,000 in equity to purchase a new investment property for $689,000, using my $350,000 equity to buy it? –Lucas L.

DEAR LUCAS: To qualify for an IRC 1031 tax-deferred exchange, all properties in the trade must be “like kind.” That means held for investment or use in a trade or business and you must trade equal or up in both price and equity.

A Starker tax-deferred exchange requires the sales proceeds from your old investment property must be held by a qualified third-party intermediary, you must designate the replacement property within 45 days after the sale, and the acquisition must be completed within 180 days.

If you trade down from your $700,000 investment property to a $689,000 investment property, but with equal $350,000 equity in both properties, you will be receiving about $11,000 in taxable “boot” cash. For full details, please consult your tax adviser.

CAN A REVERSE MORTGAGE BE USED TO BUY A HOUSE?

DEAR BOB: My wife and I want to sell our townhouse and buy a single-family home. I am 62, and she is 59. Can we use a reverse mortgage (instead of a normal mortgage) to buy the new house? Or must we buy with a conventional mortgage and then refinance with a reverse mortgage? Will our other assets (three or four times the cost of the new house) or our ages prevent the use of a reverse mortgage? –Walter L.

DEAR WALTER: You can use a reverse mortgage to buy a house. However, because your wife is not yet 62, the minimum age to obtain a reverse mortgage, she cannot be on the title with you.

Because of your relatively young age and long life expectancy at 62, you will have to make a large cash down payment. The amount of your other assets or your credit rating doesn’t affect your reverse-mortgage eligibility. For details, please consult any reverse-mortgage representative who offers Fannie Mae reverse mortgages for home purchase.

NOT MUCH OF A MARKET FOR HALF OF A HOUSE

DEAR BOB: My partner and tenant-in-common co-owner died about a year ago. The probate court recently cleared his estate. What a mess! Now I know why you constantly harp about putting realty titles into a revocable living trust to avoid probate. But my problem is his will left his half of the house to his mother who lives in Ireland. She wants me to buy her out. But I don’t have the money or credit to do so. I talked with several local Realtors about selling her half interest in the house. They all said they would keep it in mind but they weren’t optimistic about finding a buyer. Any suggestions? –Scott W.

DEAR SCOTT: The obvious solution is to sell the house, dividing the sales proceeds between yourself and your late partner’s Irish mother. But I presume you want to stay in the house.

Even if a buyer for her half of the house could be found at a below-market price, that buyer might then bring a partition lawsuit to force the sale of the house. Again, that probably isn’t what you want.

If there is any way you can buy out your new co-owner’s share of the house, that appears to be your best choice. Perhaps you might suggest she sell her half to you, secured by a second mortgage on the house. That would give her monthly income from your payments and you can then remain living in the house.

The new Robert Bruss special report, “Pros and Cons of Investing in Rental Houses and Condominiums,” 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

Generally, it takes longer to sell homes this year than it did in 2006. This is primarily because the inventory of homes for sale has ballooned from the record-low inventories of recent years. When the listing inventory grows, buyers have more to choose from. They can hold out for what they really want without worrying about prices rising in the meantime.

Despite the trend, there are areas around the country — like the Claremont area of Berkeley, Calif., or Pacific Palisades in Los Angeles — where listings are in short supply. In these markets, buyers aren’t content to sit back and wait for the perfect English Tudor or Spanish Mediterranean. They are willing to make compromises.

Rather than hold out for everything you ideally want in a home, be willing to drop some of your preferences. It’s a good idea to write down everything you’d like to have in a home. Seeing the list can help you prioritize which items are the most important to you. Divide the list up into those items you must have and those that are discretionary. This way you’ll be better prepared to make a decision about a listing.

Low-inventory housing markets tend to be fast markets. You may not have much time to decide if you want to make an offer on a property. So, it’s best to be prepared. This includes being preapproved for financing.

It also means being able to quickly analyze a listing to determine if it includes enough of what you want and need. Even when there is a lot of inventory, the kind of house or condo you’re looking for may be in short supply. So, you should be prepared to act on short notice.

A compromise that many buyers make is accepting a property that must be adapted to suit their needs. For instance, if you need a studio work space, a basement might qualify for a conversion as long as the house has plenty of storage space elsewhere.

Just make sure if you buy a fixer-upper that you have a good understanding of how much it will cost to make improvements. Use the inspection-contingency time period to collect as much information as possible about future renovation feasibility and costs.

HOUSE HUNTING TIP: Buyers who aren’t willing to trade off property condition or location often find success if they broaden their search to include more than just one neighborhood. Buyers who won’t compromise on location might consider renting.

Renting before buying makes sense for buyers who are moving into an area in which they’ve never lived before. If the inventory is low, it allows you to get acquainted with a new area while you wait for the right home to come along. You could find after living in the area for awhile, you’d rather live elsewhere.

It’s difficult to buy long distance even under the best of circumstances. When the inventory is low, it may be impossible to buy within the timeframe you have in which to move. Although renting is rarely a first choice, it is far better than buying the wrong house.

It can be worthwhile even if you have to buy your way out of a lease. It would be sheer luck if the right listing came on the market just as the lease ran out. Plan to buy whenever the right property comes along.

THE CLOSING: Low-inventory markets tend to be competitive. Some buyers find they need to lower their price range in order to compete if multiple offers are sending prices significantly over the list price.

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 2007 Dian Hymer

With one important exception, lenders price loans on the assumption that borrowers will include taxes and insurance premiums in their monthly mortgage payments. These payments are placed in an escrow account under the lender’s control. On a payment date, the amount due is paid by the lender.

The escrow requirement protects the lender. If the taxes are not paid, the tax authority could place a lien on the property that would have a higher priority than the lender’s lien. Similarly, if the insurance premiums are not paid and the house burns down or is flooded away, the lender’s protection goes with it.

Escrow is not an absolute requirement. Borrowers who want to pay their own taxes and insurance can waive the requirement by paying a modest fee. Most borrowers offered the choice accept the escrow, I suspect less to save the fee than because they find that the payment discipline is useful. I escrowed on both my mortgages because it simplified my life.

In the subprime market, however, most borrowers are not offered the choice. They need not pay a fee to have the requirement waived because there is no requirement. In this market, loans are sold to relatively unsophisticated borrowers on the basis of payments, which are lower when they don’t include escrows. Lenders who insisted on escrows would lose business to those who didn’t.

The upshot is that borrowers who have shown themselves to be the least capable of managing their credit affairs and who are most in need of the discipline provided by the escrow system don’t have it offered to them.

With the recent jump in subprime foreclosures, this feature of the subprime market has emerged as one contributor to the problem. Legislators hearing about it are understandably outraged. The response of some is to propose that escrows be mandated by law on all mortgages.

In deliberating this idea, lawmakers should understand that the firms who manage escrow accounts, call them “servicing agents,” or SAs, sometimes abuse borrowers for profit. SAs are not selected by borrowers, and cannot be fired by them no matter how much harm they cause the borrower. Further, when SAs manage a borrower’s escrow account, the potential harm they can cause increases substantially.

For one thing, SA systems sometimes fail and the borrower’s tax and insurance payments don’t get made. Because some SAs don’t disclose the payments they make (or don’t make) on a current basis, borrowers can be in the dark for an extended period before they discover that the SA has screwed up. Meanwhile, they may find themselves with a cancelled insurance policy or a tax lien on their property.

I have heard many horror stories of this type directly from borrowers. Outside of legal action against the SA, which few borrowers can afford, they have no effective recourse. Borrowers who pay a fee to waive escrows often do it to avoid this risk.

A second risk arises in connection with an increase in the required escrow payment, which the borrower, for any number of reasons including lack of proper disclosure by the SA, fails to make. Many SAs in this situation place the entire payment in a suspense account and mark the borrower delinquent. This pernicious practice results in unnecessary delinquencies and late payments, and can lead down a slippery slope to collections and ultimate foreclosure.

Unfortunately, to make escrows the norm in the subprime market requires that escrows be made mandatory for all mortgage borrowers. Escrows can’t be required for “subprime” loans only because that term can’t be precisely defined. And if the law only required that escrows be “offered” to borrowers, it would be sabotaged by loan officers and mortgage brokers.

But the requirement could be short. Its purpose is to force borrowers at the outset to confront their ability to afford the major expenses of home ownership, and this purpose would be served by an escrow requirement that applied only to the first year. After that, borrowers should be allowed to opt out if they want to.

But to require borrowers to escrow, even if only for a year, without protecting them against escrow abuses by SAs, would be irresponsible. SAs should be required to provide easy-to-understand monthly statements showing everything that transpired during the month that affected the borrower’s account. This should include payments out of and credits to escrow, balance changes and their sources, rate adjustments, and fees. In addition, SAs should be prohibited from placing scheduled payments of principal and interest in suspense accounts when only the escrow payment is short.

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 2007 Jack Guttentag

“How can I make some big money in real estate?” That was the question an old friend asked me recently. He purchased two rental houses a few years ago and has enjoyed watching them appreciate in market value. But in today’s current “buyer’s market,” he said, his houses have stopped going up in value and are “stagnating,” as he put it.

Then I politely suggested that if he wants to acquire profitable houses in today’s market the best opportunities are in “fixer-upper houses,” which few other home buyers want to purchase.

Purchase Bob Bruss reports online.

TEN ATTRIBUTES OF PROFITABLE FIX-UP HOUSES. Like my friend, if you are serious about earning profits from fixer-upper houses, here are the 10 key attributes to seek:

1. Basically sound condition without major structural defects. In most communities, this means looking for three- or four-bedroom houses with good foundations and without a major need for renovation other than cosmetic fix-up. Avoid two-bedroom houses unless your town has a strong renter or buyer demand for these smaller homes.

2. Good location with a low crime rate. No matter how enticing a run-down, profit-potential house might be, if it has a poor location there’s little or nothing you can do to cure that.

For example, houses next to a noisy freeway or on a very busy street won’t appeal to most other buyers except at bargain prices so there is little you can do to raise values in an undesirable location. If most of the nearby houses are run-down and poorly maintained, they will drag down the value of your house. However, if you buy a run-down house in a good neighborhood of well-maintained homes, they will drag the market value of your home up after it is renovated.

3. Good-quality school district. Even when a house is in sound condition in a good location, if the public schools are of poor quality, that greatly hurts the resale value for fixer-upper houses. Always look for houses with school test scores at or above the median for the area where families with children are attracted.

4. Need for profitable cosmetic fix-up work, but not major unprofitable repairs. Examples of profitable cosmetic improvements include fresh paint inside and outside (the most profitable improvement you can make), new light fixtures, new carpets and flooring, and fresh landscaping.

But stay way from fixer-upper houses that need unprofitable work such as new wiring, new plumbing, foundation repairs, major kitchen and bathroom renovation, room additions, and a new roof. These expensive, unprofitable improvements rarely add more than their cost to the market value of the home.

5. Purchase price at least 30 percent below the market value of nearby comparable homes in good condition. “Buy the worst house in the best neighborhood” is a sound motto to follow. Another good motto is: “Your first profit is earned when buying at the right price.”

If the seller won’t heavily discount the sales price to compensate for a home’s run-down condition, keep looking until you find a house with profit potential meeting the criteria explained here.

6. Purchase from a motivated seller who is anxious to sell. Motivating reasons for selling a home include job transfer, pending foreclosure, divorce, health reasons, family birth or death, and unemployment.

If the home has been listed for sale at least 60 to 90 days with no offers, even if the asking price is too high, that is another indication of possible sales motivation so it may be time to make a “lowball” purchase offer.

7. Affordable low-down-payment financing. Taking over an existing mortgage (called buying “subject to”); a lease with option to buy; seller carryback financing; or a combination of these methods indicates probably easy financing.

If the house is in bad shape, avoid obtaining a new mortgage unless it is approved by the lender on an after-fix-up, market-value appraisal. After your fix-up work is completed, that’s the time to get a new mortgage, based on the home’s increased market value.

8. Seller or tenant will vacate immediately upon transfer of title. The best way to profit from a fixer-upper house is to work on a vacant structure. Attempting to make improvements while the seller or a tenant lives in the property makes the upgrading work doubly difficult.

9. Within a 60-minute drive from your current residence. During renovation of a fix-up house, it pays to visit the property nearly every day to be certain the work is getting done correctly.

When the owner doesn’t inspect frequently, the workers often don’t show up or they slack off. Incidentally, never pay contractors by the hour (except for minor work) and always pay by the job after it is finished to your satisfaction.

10. Good demand from renters and/or buyers. Unless you plan to live in the fixed-up house, it pays to consider the current demand for houses from renters and buyers. If local employment and economic conditions are good, chances are home values are stable.

However, if more people are moving out than are moving into the community, maybe it’s not the right time to invest in a fixer-upper house there unless it can be bought for a 40-50 percent discount off the market value of nearby homes in excellent condition.

CREATE A TAX-FREE, HOME-FIX-UP BUSINESS. If you are serious about earning profits from fixer-upper houses meeting the 10 criteria listed above, buying a “fixer” can become the basis for a very profitable tax-free business.

Thanks to Internal Revenue Code 121, if you own and live in a principal residence at least 24 of the 60 months before its sale, you can claim up to $250,000 tax-free capital gains. When a married couple both meet the occupancy test, up to $500,000 of profits can be tax-free.

This tax-break can be used over and over without limit. However, IRC 121 cannot be used more frequently than once every 24 months. More details are available in my special report, “How to Buy Fixer-Upper Houses With Little or No Cash for Fun and Fortune,” 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.

(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

As Berkeley, Calif., goes, so — eventually — goes the nation. As frightening as this may sound to some, it’s a fact borne out by history. Opposing the Vietnam War, spearheading ecological concerns, mandating energy-efficient buildings, banning smoking in public places, demanding equal access for the disabled — these causes were all dismissed as “Berkeley radical thinking” in their time. Today, they’ve all long since been integrated into mainstream America. While some might still quibble with one or another of them, in retrospect, most of us would now regard these causes as honorable and thoroughly American.

Today there’s another revolution brewing in Berkeley, albeit a much quieter one. No matter where you look, the streets of this small university town are teeming with hybrid vehicles — most of them made by Toyota, with a lesser number from Honda, and practically none, I’d point out, made by that blundering straggler, General Motors.

If Berkeley proves as prescient in this “radical” trend as it has in prior ones, the environmental implications are vast. For one, it signals the beginning of the end for conventional internal-combustion powered vehicles, many years earlier than auto industry analysts and other in-the-box thinkers would have us believe. Then again, these are the same folks who saw nothing shortsighted about GM cashing in on SUVs while leaving their advanced vehicles program to molder.

What’s so different about hybrids? While conventional cars have huge gasoline engines sized to meet peak power demands (which typical drivers use perhaps 1 percent of the time), a hybrid uses a small, high-efficiency gasoline engine to generate electricity onboard. This, in turn, powers an electric motor that moves the car. This smaller engine is sized to provide power for average cruising, not for peak demand. When extra power is needed, as in climbing a grade or passing, it’s provided by the batteries or by the gasoline engine, as appropriate.

Hybrids also have a regenerative braking system that transforms braking energy into electricity instead of wasting it in heat as a normal car does. The small size and steady running speed of the hybrid’s engine, the regenerative braking system, and other features let hybrids achieve about twice the mileage of conventional cars, while producing a fraction of the pollution. These advantages will only become more pronounced as the cars are refined over time.

While hybrids have some of the same shortcomings as conventional cars — an inherently inefficient internal combustion engine that burns gasoline and spews pollution, and a relatively friction-laden drive train — they nevertheless represent a huge advance over the clumsy mechanical-drive cars most of us still own, providing an important stepping stone to true zero-emissions vehicles.

The only bad news is that the American auto industry will likely be at the tail end of this revolution, watching foreign competitors write the conventional car’s epitaph. This is largely thanks to the monumental stupidity, shortsightedness and greed of General Motors executives, who preferred to wallow in the lucrative SUV trough while foreign competitors did their homework. Maybe those GM folks should’ve gotten out of the boardroom now and then, and taken a drive around Berkeley.

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

Copyright 2007 Arrol Gellner

Whether you have a brand-new deck that you’d like to keep looking fresh or one that’s seen better days and could use a bit of a facelift, there are lots of very effective products out there that can help you reach your goals.

GETTING READY

Before applying any finish to your deck, it needs to be clean. For a new deck, it’s best to allow the deck to season for a couple of weeks to make sure that the fresh lumber has dried. After that, just sweep it off with a soft broom to remove any sawdust and surface dirt, or blow it off with a leaf blower.

For an older deck that is discolored and that you intend to stain, your best bet is to use a product that is specially formulated for cleaning wood decks. Unlike older products that utilized chlorine bleach for cleaning, these newer-generation products clean the wood without lifting and damaging the wood fibers, and will not leave the wood unnaturally white.

Cleaners such as Wolman’s DeckBrite are powdered and simply mixed with water. You can put it on with a roller, brush or garden sprayer, and it’s very effective in getting rid of stains and gray wood fibers. Products such as these also help open the pores within the wood so that the finish material will penetrate more readily.

If your deck has been previously painted or stained, it may be necessary to sand or scrape the wood, or even apply a stripper. This is something to discuss with an experienced paint store, and have them help you select the most appropriate product for your specific application. Once again, after the old deck has been cleaned or stripped, make sure that all of the surfaces are swept or blown clean before applying any finish material.

BEWARE OF PRESSURE WASHING

It’s definitely best to avoid using a pressure washer to prepare your deck for a new finish. In the process of generating sufficient pressure to remove stains or paints, you will actually be breaking apart the wood’s fibers. When that happens, the raised fibers will leave the deck looking fuzzy as it dries — a surface that is difficult to refinish and potentially dangerous to walk on. If that should happen, your only option will be to sand the deck smooth again, and that’s an extra task that you would just as soon avoid!

With any deck-cleaning product, if the manufacturer offers pressure washing as an option for removing the cleaning product after it has been in contact with the wood for the specified amount of time, be sure you only use a wide, soft-spray tip and the lowest amount of pressure possible.

SURFACE FINISHES

A visit to any good paint store will show you that you have a lot of choices when it comes to the finish material for your hardworking deck. So when making your choice, first consider what you want the deck to look like, as well as how you want to apply the material and how often you want to reapply it in the future to maintain the same look and color. There are clear finishes that soak into the wood without substantially changing its color, and will help protect the wood against dirt, discoloration and the harming effects of ultraviolet (UV) light from the sun. If you would like to add a little color, then select one of the deck stains that are specifically made for outdoor wood. If you would like to paint it instead, for durability and long life you’ll want to select an outdoor enamel specifically formulated for walking surfaces.

Deck finishes are typically oil-based products that are designed to penetrate into the cells of the wood, rather than just sit on the surface as some water repellants do. You definitely want a material that will penetrate into the wood and seal it, and there are a number of very effective products on the market for this use. But remember — you really do get what you pay for with deck finishing materials, so get some help from the folks at your local paint store before making your choice, and don’t skimp.

To maintain your deck’s protection, you will typically need to apply another coat of finish in one to three years, depending on weather conditions. When the time comes, you’ll usually find that you’ll get the best results from taking the same cleaning and preparation steps, and then reapplying the same material as you used the first time.

With any cleaner, stripper or deck-finish material, always follow the manufacturer’s specific instructions for application, ventilation, protective clothing and cleanup. Also, have the paint store provide you with an MSDS (Material Safety Data Sheet) for each product you’re going to use, which will give specific information about how to protect yourself and what to do in the event of an accident.

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

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

Copyright 2007 Inman News