DEAR BOB: You're always writing for the wealthy. Why don't you help the "little guy" like me? For 14 years, my three children and I (my wife left 10 years ago) have rented a two-bedroom subsidized apartment. Every time I turn around, prices are going up. Even our rent goes up. I enjoy your articles, but why don't you ever explain how the working people, just barely above the welfare level, can benefit from real estate? William J., Washington.
DEAR WILLIAM: Until you start owning real estate, you'll continue to be inflation's victim. Regardless who wins the November elections, don't expect inflation to stop. You've got to act to take advantage of inflation to improve your situation. I know it isn't easy but if you're really motivated, you'll find a way.
First, decide your goals. Do you want to buy your own home? Or maybe you prefer to retain you subsidized apartment and invest in income property.
Next, although it will be difficult, start saving. Maybe you can get a better job or a weekend job to increase your income so you can build a small nest egg.
Just a few thousand dollars is usually enough to buy a small house. No down payment is required if you qualify for a VA home mortgage. Then move in and fix it up. This is the way many people start their real estate fortunes. Unless you make the first move, don't expect anyone to improve your situation for you. Today is a buyer's paradise for home buyers so don't wait.
If you are sincerely motivated to use real estate for your benefit, you must read two books. They're free at your public library. (1) William Nickerson's "How I Turned $1,000 into $3,000,000 in Real Estate in My Spare Time" (Simon and Schuster, 1969) fits your situation perfectly. (2) Robert G. Allen's "Nothing Down" (Simon and Schuster, 1980) tells how to buy property today with little cash. If those two books don't motivate you to start benefiting from real estate, nothing will.
DEAR BOB: Recently you wrote that FHA and VA home loans are usually available when other home mortgages are not. What are the down payments required to get these loans? Jarvis D., Cumberland, Md.
DEAR JARVIS: VA home loans up to $100,000 require no cash down payment. Loans above that amount are available from some VA lenders who usually require a cash down payment of 25 percent of the amount over $100,000.
FHA home loans require a cash down payment of 3 percent of the first $25,000 plus 5 percent of the balance, up to a maximum FHA home loan of $67,500. This maximum FHA loan limit may be increased by the time you read this.
DEAR BOB: Please give me information how real estate profits are taxed. I inherited some rural land about 11 years ago. It is now worth more than $300,000 and I am considering selling. Davis J., Falls Church.
DEAR DAVIS: Real Estate sale profits, if the property was owned over 12 months, are taxed as "long-term capital gains." That means only 40 percent of such profits are taxable as ordinary income and the other 60 percent is tax-free.
Your sale profit is the difference between the property's "adjusted sales price" (which means gross sales price minus sales costs such as realty commission and transfer fees) and its "adjusted cost basis." Adjusted cost basis is the purchase price (including closing costs which weren't tax deductible) plus capital improvements added during ownership minus any depreciation and casualty loss deductions.
Your "purchase price" for the inherited property is its fair market value on the date of the decedent's death.
Suppose you make a $100,000, long-term capital gain on your land sale. Only 40 percent will be taxable. The $40,000 is added to your other ordinary income, such as job salary, and taxed at ordinary tax rates. But the 60 percent tax-free portion escapes taxation. That's why long-term captial gains are so desirable. Ask your tax advisor for further details.