DEAR BOB: I enjoyed your recent article on the new "Starker exchange" technique for selling investment property and acquiring other such property without paying tax. Before I knew about such exchanges, I sold some land in October 1979. Can I use a Starker exchange to buy other property, such as a warehouse, and defer paying my profit tax? Jess.
DEAR JESS: No. To qualify for a Starker exchange tax-deferral when disposing of investment or business property, three steps are involved: (1) sell the property you now own, (2) have the sale proceeds placed in trust beyond your control, (3) find the property you want to acquire and direct the trustee to buy it for you to complete your tax-deferred trade.
Since you already sold your land and received the sale proceeds, your situation can't qualify for a Starker exchange. If you had consulted your tax advisor or real estate attorney before the transaction, it could have been properly structured to qualify for tax deferral.
DEAR BOB: The woman who owns our apartment house has been asking the tenants if they would like to have the building converted to condominiums. She says several have requested her to do so as they don't want to continue wasting money on rent. But we are undecided. While we love our apartment and don't want to move, we hate to tie up money at our ages (67 and 71). The owner would finance the sale (she inherited the building and owns it free and clear) at 10 percent interest. That seems like a bargain to me. What do you suggest? Kim and Tim.
DEAR KIM AND TIM: Assuming the price for your apartment is reasonable, buy it. Do everything you can to help your owner get the conversion accomplished. Owning your apartment offers far greater benefits and security than being a tenant.
Favorable financing terms make condo conversion especially attractive. And it's a "good deal" for the landlord, too. Due to rising operating costs she probably isn't making much money operating the building as an apartment house.
As for the age aspects of purchase, you can never be too old to buy good real estate. Several years ago I encouraged my parents to buy their apartment when it was converted to condominium status. It's the best investment they ever made. Yours will probably be equally satisfactory due to the tax, investment profit and security benefits.
DEAR BOB: When we bought our home, the bank required us to provide a title insurance policy to protect its mortgage. The attorney said we should buy an "owner's title policy" to protect our equity. But we decided to save the $232. Do you think we should have bought this policy? I hear title insurance companies rarely pay off any claims. Is this true? Dave G.
DEAR DAVE: The answer to both your questions is yes.
Mortgage lenders insist on title insurance to protect their loans in the event of an adverse title claim against your home. Losses due to forged signatures, title search errors, improper recordings and undiscovered easements are just some of the title risks insured.
Without an owner's title insurance policy if you should lose your property due to a title problem, your equity would be wiped out. For that $232 title insurance premium, you would be protected from insured title risks as long as you own the property. It's cheap peace-of-mind insurance.
The reason title insurers rarely pay a claim is that they carefully research a property's title before insuring it. But title insurance policies protect against many title risks that are virtually undiscoverable, such as forgeries. These are the unexpected losses that insurers pay. Out of every $100 title insurance premiums collected, only about $4 is paid out in title claims. Now you know why.