DEAR BOB: We are in the process of selling our home and are trying to calculate our profit.
Over the years we enclosed the front porch for $2,224, replaced the roof for $3,600, added air conditioning to the furnace for $2,625, installed a larger 50-gallon water heater for $278, repainted the exterior for $1,200, installed new landscaping for $2,650 and replaced the driveway for $2,400.
Can we add any of these costs to the original purchase price of our home? -- Jose M.
DEAR JOSE: Yes. The general rule is the cost of capital improvements can be added to your home's purchase price, thus reducing your taxable sale profit. However, home repairs and ordinary maintenance costs are personal expenses that cannot be added to your home's adjusted cost basis.
Dear Bob: I am perplexed why the volume of home sales is down. With mortgage interest rates falling and the number of homes for sale rising, could the lack of sales volume be caused by buyer fear that home prices might drop and today's home buyer could lose money?
With home mortgage interest rates declining, shouldn't home sales be increasing? If I buy a home today, how can I be sure I won't lose money? -- Jesse A.
DEAR JESSE: For possible answers to your questions, consider the Las Vegas home sale market, which is very active. Why? Because new jobs are being created in Las Vegas. In most other cities, jobs are not being created and workers are uncertain of job security, so prospective home buyers postpone purchases even though they know today is an ideal time to buy, especially since mortgage interest rates are dropping.
Experienced real estate agents will tell you the most difficult time to sell homes is when mortgage rates are declining, as they are now. Why? Because buyers think they will get a lower rate by waiting. But when interest rates bottom out, watch for home sales volume to increase along with rising home prices.
You ask how to avoid losing money on a home purchase. The best way I know is to buy a run-down "fix-up" home at a below-market price. Then renovate it and its market value will increase from the improvements. This is the surest way to avoid losses and gain profit in the current home market.
DEAR BOB: Near my home is a house that burned about six months ago. The widow who owns it wants to sell. She received the fire insurance check, but has no plans to rebuild. Her asking price for this commercially zoned lot is a bargain.
However, I don't have much money. I know the lot is worth much more than she is asking. How can I tie up this corner lot for minimal cash until I can find a wealthy partner, so we can build stores on it? -- Jacob P.
DEAR JACOB: Find out what the owner's needs are. Perhaps she wants monthly income. If so, you might offer her a lease with option to buy the lot for her asking price. The longer the lease, the better for you.
In return for monthly lease payments to the owner, your purchase option remains in force while you search for a money partner. In the meantime, you control this valuable property at a minimal monthly cost. For further details, consult a local real estate attorney.
Readers with questions should contact Bruss directly at P.O. Box 280038, San Francisco, Calif. 94128.