DEAR BOB: How long do you think tight mortgage money will last? David F., Rockville.
DEAR DAVID: Someone asks that question at almost every meeting I attend. I wish I knew the answer.
Several nationally prominent economists predict that expensive (read that to mean "tight") mortgage. money will last 12 months or longer. However, there are still many buying opportunities if you get the property seller to carry the first or second mortgage. Financing techniques include land contracts and lease options to aviod having to get expensive mortgage money from a commerical lender. Work with a good real estate agent who understands "creative finance" to avoid tight mortgage money problems.
DEAR BOB: Some time ago you told how a property purchase contract can be broken. I forgot to clip and save that article. Please explain it again? Teddy A., Easton, Md.
DEAR TEDDY: The only way to legally cancel a property purchase contract, unless the other party defaults, is to use a contingency escape clause included in the contract. Examples include contingency clauses to cancel the purchase if you can't get a specified mortgage or if an "inspect and approve" clause gives you the right to cancel if an inspection locates defects in the property.
You can put as many contingency clauses in the purchase contract as the seller will accept. Your realty agency can show you typical escape clauses that protect property buyers.
DEAR BOB: As an inflation hedge, are duplexes or houses better? Wes L., Alexandria.
DEAR WES: You can do well with either duplexes or houses if you buy sound, well-located structures. I prefer small income properties of two to four units, but I've also done well with single-family rental houses.
You'll probably find that the rental demand and resale demand for single-family houses exceeds that for duplexes, however. But a big advantage of duplexes is that when you have a vacancy, the building is only 50 percent vacant. When a rental house is vacant, it's 100 percnt vacant. Talk with local realty agents for any local aspects which my influence your decision.
DEAR BOB: If my apartment tenant installs new wall-to-wall carpets that become my property when he moves out, how do I report this on my tax returns? Ivan E., Washington.
DEAR IVAN: You don't. Tenant improvements to your property are neither taxable nor depreciable. Of course, if you gave a rent reduction in return for the tenant's carpet installation, then the carpets become taxable income to you. Your tax advisor can explain further.
DEAR BOB: I bought a $42,000 rental property in 1974. I assumed its $26,000 mortgage and gave the seller a $4,000 second mortgage. That second loan is due next year. I've been paying "interest only" on it, so the full $4,000 is due. The building is worth at least $58,000 now. How should I handle the $4,000 balloon payment? Renegotiate? Borrow the $4,000? W. H., Annapolis.
DEAR W. H.: You're smart to plan ahead for that balloon payment. Start by asking your seller is he will extend the mortgage for a few years. That's your cheapest alternative.
If he refuses, consider refinancing the old first mortgage. Or you might wish to borrow from a second mortgage leander, leaving your old first mortgage intact.
Your third alternative, of course, is to sell the property. But then you'd lose its tax and valur appreciation advantages.
If you can refinance for more cash than you owe on the second mortgage, you can use that tax-free cash to buy another property as a further inflation hedge. Only after gathering all the borrowing facts and costs can you make the right decision.
DEAR BOB: A co-worker recently got a VA home loan for $92,000. He said no cash down payment was required, except for some closing costs. Is this possible or was my friend exaggerating a little? Carl N., Alexandria.
DEAR CARL: Your friend was probably telling the truth. The last Congress raised the VA home loan guarantee to $25,000. That means most VA-approved mortgage lenders now grant VA home loans up to four times that guarantee. So $100,000 Va/ mortgages are now available for veterans who have adequate income.
For full details, contact your VA-approved bank, savings and loan association, or mortgage broker. Some realty agents also have information on the new VA loan limits and qualifications too.
DEAR BOB: We qualify for that new sales tax exemption on houses up to $100,000 for people over 55. But our sale profit will only be about $45,000. We plan to move into a rental apartment for a few years. If we later buy another house that we eventually resell at a profit, profit, can we then use our $55,000 remaining exemption? Dennis R., Washington.
DEAR DENNIS: No. The new tax break is available only once per lifetime. If you don't use up the entire $100,000 exemption, the balance is wasted, as there are no partial exemptions. See your tax advisor for complete details.