REAL ESTATE MAILBAG

Q DEAR BOB: We recently signed a purchase contract to buy a house, using $25,000 as the required deposit. A week later, after working our mortgage payment numbers, we found we could not afford to buy it. After many sleepless nights, we told our real estate agent we had to back out of the contract. What are we responsible for? Could we lose our deposit? Can other action be taken against us? -- Robert P.

ADEAR ROBERT: Your situation should be a lesson to all prospective home buyers to know what you can afford before signing a purchase contract.

It sounds like you have a severe case of "buyer's remorse," which could have been prevented if you were preapproved in writing by a mortgage lender. The lender wouldn't approve a mortgage you can't afford.

After your default, your home seller has a legal obligation to mitigate damages. That means the seller and the listing agent must try to sell the home for the same or better price and terms than you offered. If that isn't possible, you could be held liable for the seller's damages.

Depending on the wording of the sales contract, you might be liable for loss of the entire $25,000 good-faith deposit. However, if the sales contract says the deposit is agreed to be "liquidated damages" in the event of the buyer's default, then you can't be held liable for any additional damages. Consult a lawyer for details.

DEAR BOB: Can you recommend a couple of good real estate books to help me get started investing in real estate? -- Rick L.

DEAR RICK: Although you didn't indicate what type of real estate investments you prefer, I suggest you start with single-family houses and small income properties.

I highly recommend these recent books by successful investors: "Building Wealth One House at a Time," by John W. Schaub, and "Start Small, Profit Big in Real Estate," by Jay P. DeCima.

DEAR BOB: My daughter rents a townhouse that the landlord wants to sell. She wants to buy it, but she has no money for a down payment and her debts preclude her from getting a mortgage for at least a year. The landlord has agreed to continue renting to her for a year if she wants to stay. I suggested that she ask him to sell to her and carry back the mortgage for a year until she can get a mortgage from a bank. The landlord is asking $89,000, but the townhouse, which is in a good neighborhood, is probably worth much more. What is the best way to handle this situation? -- Mae LeB.

DEAR MAE: Presuming that the landlord owns the townhouse free and clear with no mortgage and that the landlord likes and trusts your daughter, ask him to carry back the mortgage for several years rather than just 12 months.

That will give your daughter adequate time to get her financial house in order before she applies for a home loan from an institutional lender. Seller financing is always the best way to buy a home. But a one-year mortgage is highly risky for your daughter.

DEAR BOB: I recently "flipped" two brand-new condos, buying and selling them within four months. How do I calculate my adjusted cost and my adjusted sales price? Should I include my purchase price, mortgage interest, homeowners association dues, property taxes and monthly utilities? When calculating my adjusted net sales price, can I deduct the closing costs and the real estate agent's sales commission? -- Kasen T.