DEAR BOB: I just bought my first rental house. Is there a handbook on how to rent and manage houses? -- Len S.
DEAR LEN: The best book on profitable rental house investment and management is Dave Glubetich's "The Monopoly Game (4th Edition)," available at larger libraries and bookstores. You can order it by mail from Impact Publishers, 1601 Oak Park Blvd., Pleasant Hill, Calif. 94523 for $9.95.
DEAR BOB: Recently, you suggested that loans among family members can be documented by a promissory note. That's a good idea. But as an attorney I suggest the note should be secured by a recorded mortgage or deed of trust. The reason is if the borrower should become bankrupt, the family member who laoned money not secured by a mortgage or deed of trust would be an unsecured bankruptcy creditor. No one thinks about bankruptcy when making such a laon, but that's the time to protect the family lender. The same principle applies to a shareholder loaning money to his corporation. The only private loan which should be made unsecured is one which the lender is willing to lose. -- Bruce L.
DEAR BRUCE: Thanks for the idea of putting family loans on a business basis by securing the loan with a mortgage or a deed of trust. Such loans are often made by parents to their children so they can buy their first home.
It's easy to record a second mortgage or deed of trust to protect the lender in case of bankruptcy or other unpleasantness such as a divorce.
DEAR BOB: I recently sold my home and my buyer assumed my FHA mortgage. I paid the one-half percent FHA mutual mortgage I paid the one-half percent FHA mutual mortgage insurance premium for 10 years. Since I am no longer the borrower, am I entitled to a refund? I wrote to HUD but was told I wasn't entitled to any refund because my mortgage is still in an insured status. -- Robert R.
DEAR ROBERT: Refund of the FHA home mortgage insurance premium is made only when an FHA mortgage is fully paid off.
Since your loan is not yet paid off, FHA still collects the one-half percent insurance premium from the buyer of your home. When he eventually pays off the loan, then he will receive a partial refund of the loan insurance premium.
If your FHA leader cannot answer your questions on refund of FHA mortgage insurance premiums, write to FHA Assistant Commissioner, Comptroller, Washington D.C. 20412, giving your name, current address, FHA case number and the property address.
DEAR BOB: We closed our VA mortgage in March 1980 at 13 percent interest rate. Now that interest rates have dropped, can I refinance without having to pay those high discount loan fees? -- Albert McM.
DEAR ALBERT: Not yet. Congress is considering a bill to allow refinancing of high interest rate VA mortgages without the usual costs. Write your congressman and senator to express your opinion and to inquire on the bill's progress.
DEAR BOB: I recently went through a divorce. We sold our house for $58,750 and split the $28,750 profit. She got $12,375 and I got $16,375. Two questions: (1) can I buy a new or used house or condo and defer the capital gains tax on my $16,375 share? If so, must I buy a home costing more than $58,750 or $31,375 (my $16,375 profit plus my $15,000 share of our original purchase price)? (2) If the answer is "yes" and I can qualify for tax deferral, how much cash must I reinvest in the house? -- Orin W.
DEAR ORIN: Question like yours are frequently asked and are of wide interest due to the frequency of divorces.
(1) Yes, you can qualify for the tax deferral "residence replacement rule" of Internal Revenue Code section 1034. It's available to taxpayers of any age who sell their principal residence and buy a more expensive replacement within 18 months before or after the sale.
The rule is applied individually to divorced people. Assuming your share of the adjusted sale price (after subtracting sales costs, such as the real estate sales commission) is $31,375, to qualify for tax deferral on your $16,375 profit, your replacement residence much cost at least $31,375. In most towns it's almost impossible to buy a home for less than this amount so you should have no difficulty.
(2) The residence replacement rule has no minimum or maximum limit on the amount of cash from the sale that must be reinvested in the replacement principal residence.
For example, if you qualify you could buy your replacement home with 100 percent financing on a VA mortgage. Then you could use the leftover cash for other uses, hopefully to invest in more good real estate. Your tax adviser has further details.
DEAR BOB: I have one simple question. I just sold a two-acre empty lot in Michigan. Am I eligible for a homeowner's tax exemption on my profit? -- mrs. D. C.
DEAR MRS. D. C.: No. The two special tax breaks for sellers of their principal residences, the "residence replacement rule" and the "over 55 rule," ($100,000 home sale tax exemption) apply only to the sale of your primary residence. Other property sales can't qualify. Your tax adviser has further information.
DEAR BOB: Thank you for sending your report on "How to Avoid Tax and Put Tax-Free Cash in Your Pocket When Selling Your Residence." You say these special tax rules apply only to a person's "principal residence." Is it possible to have two principal residences? I have one home in Florida and another up north in which I spend about equal time each year. -- Robert S.
DEAR ROBERT: As far as Uncle Sam is concerned, you can only have one principal residence at a time. Attributes of your principal residence to consider are (1) where you vote, (2) where you spend most of your time, (3) the length of ownership, (4) where you earn most of your job income and (5) where you file your income tax returns. Your tax adviser can help you decide which is your primary residence.
DEAR BOB: I am the sole owner of a three-bedroom home which I have been thinking of putting up for sale. It has no mortgage. But I understand the real estate agents won't take on such a sale since there is no mortgage on it. It is true? I am completely ignorant as how to put this property up for sale. Or should I rent it? I hesitate to rent in case the tenant doesn't take good care of the house. -- Birdie L.
DEAR BIRDIE: Real estate agents welcome listings of homes for sale whether or not the home has an existing mortgage. But homes with large existing mortgages are usually easier to sell than those which have a small or no mortgage.
If you didn't need much cash from the sale of your home, and your thoughts about renting it indicate this, why not take back the mortgage to finance the buyer's purchase? Seller financing is highly sought by buyers in today's home sale market. By offering "easy financing," you could get top dollar for your home plus a steady income in future years.
Before listing your home for sale, talk to at least three active local realty agents. Invite them to give you their listing presentations which will include a written "competitive market analysis," showing your home's market value based on recent sales prices of similar nearby homes.
But before listing your home for sale with one of the agents, ask for their client references. Then phone to ask those people if they would list with that agent again and if they were in any way unhappy with the agent's services.
DEAR BOB: I own a building in a city with rent control. Although I think rent control is disastrous and will only worsen the housing shortage, you may be interested in what's happening. The housing control commissioners approved a 7-percent rent increase for this year. In all the years I owned my buildings I never raised my tenant rents that much in one year. Until now. Thanks to rent control, I've now got an legal excuse to raise rents 7 percent. Maybe rent control isn't so bad after all. -- Bill W.
DEAR BILL: You're right. In areas with rent controls, the maximum allowable rent increase has become the minimum amount of rent raise. Owners are foolish if they don't take advantage of the maximum rent increase allowed.
Instead of protecting renters, rent controls hurt them. While rent controls don't exactly make landlords millionaires, they aren't as bad as they seem. However, rent controls dry up the numbers of buyers for apartment houses so current owners are usually stuck with their buildings in rent control areas.
DEAR BOB: One of my tenants owes me $760 for two months' back rent. Every time I confront her about this she has a new excuse. How long should I let this go before I evict her? -- Lana G.
DEAR LANA: One minute more is too long. Get busy. Start the eviction procedure which, in most areas, takes at least 30 days. Your deadbeat tenant will either pay up or have to get out. Never let your tenants fall behind in their rent. If they can't pay your rent, they've misplaced their priorities.