I often receive real estate-related questions during my regular online chat at washingtonpost.com. Here are some from recent chats I didn't have time to answer:
QWe will be selling our house soon and will have $200,000-plus to "invest" for a short time, until our new house is completed. How should we invest the money for one to two months?
AHere's what it means to invest, from Investorwords.com: "To engage in any activity in which money is put at risk for the purpose of making a profit." And what does this excellent online financial glossary say risk is? "The quantifiable likelihood of loss or less-than-expected returns."
If you need that $200,000-plus in one to two months, don't "invest" it. Park it in a savings account or a money market account. In fact, go to www.bankrate.com and look for the best savings-rate deals for your money.
As I search for a home loan, my FICO scores are 781, 786 and 793 respectively. Does it help to get the numbers even higher, or does the benefit of doing so stop paying off once you reach a certain point?
With credit scores that high, you are in solidly safe territory for getting the best home loan rates out there. So now that you know this, play the lenders against one another to negotiate the best loan terms.
I would like to refinance, get cash out, pay myself each month so that I can pay the monthly bills and go into real estate full time. Hopefully, by the time the money runs out I'll be established enough in the real estate business to sustain my living from real estate. Good idea? Bad idea?
So let me get this straight. You want to use the equity in your home for income for some undetermined amount of time to start a new career in which you have no experience?
"You might as well roll dice," said Walter Molony, spokesman for the National Association of Realtors. "This strategy is ill advised."
Without more details, let's assume that by getting into the real estate business, you mean you want to sell real estate. Well, join the crowd. Molony said that from 2002 to 2004, there was a 26.6 percent jump in the membership of NAR, which includes most serious, full-time real estate professionals.
And unless you're extraordinarily talented at selling real estate, your income won't be extraordinary at first. The median income of people in the real estate business for two years or less is $12,850, according to a recent survey of NAR members. People who have been in the business six to 10 years had an income of $58,700. Professionals with 26 years or more of experience had an income of $92,600.
Okay, so let's say you are talking about real estate investing. It's still a monumentally bad idea to use your home equity as your sole source of funds for your income and to buy real estate.
"You need to understand cash flow," Molony said. "What's going to be your income and expenses on your property? You need good entrepreneurial skills. You need to have six months of reserves in case things don't work out the way you think it will."
And you might be joining the real estate craze at its peak, which means you'll be buying high.
"We think for all of 2006, we will see a slowing of price growth in housing prices," Molony said.
Real estate investing isn't for everyone. Can you make a living at it? Sure you can. But you can also lose everything. And in your case, that might mean your own home.
My sister-in-law has asked to borrow $20,000 from my husband and me as down payment on a house. What paperwork do we need to make sure this isn't taxed as a gift and to be quite firm in letting her know (without being rude about it) that this is a loan, albeit interest-free, and not a gift?
As far as being taxed on the gift, you and your spouse can give up to $22,000 ($11,000 individually) to any person with no gift-tax consequence.
If you want your sister-in-law to completely understand you're lending her the money, get her to sign a simple loan agreement. As far as her lender is concerned, she'll have to document where the money came from and that she is borrowing the down payment. In case she doesn't know, her lender may count the borrowed money as additional debt, which could affect her loan.
What you're considering doing for your sister-in-law is so wonderful. Homeownership is the number-one path to wealth for most people in this country. And if you can help someone buy a home, that's such a great gift. But let me caution you. I wouldn't lend her the money unless you are prepared never to see (or need) it again. So many relationships have been ruined because friends and relatives lent money that they never got back. Think hard about what impact this will have on your finances and relationship if your sister-in-law can't -- or won't -- pay the money back.
* On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org.
* By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
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Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.