DEAR BOB: I am constantly amazed at the people who write to you about not being able to save for a home down payment. It is their own fault.
About three years ago, my wife and I had the same problem. But her mother gave us the idea we should offer to manage the apartment building where we were renting. The landlord gave us a free apartment in return for collecting the rents and showing vacant apartments. In addition, when I had time to do minor repairs I got paid extra. My wife, who was home minding our baby, volunteered to paint vacant apartments and earned extra money for doing that.
We kept paying ourselves the rent we were formerly paying and we added the extra money we earned from the odd jobs. After about 30 months we had nearly $30,000 in our money market fund and that was enough for a down payment on the home, which we bought last month.
Why don't you suggest to people who complain about not being able to buy a home that they manage apartments, so they can save for a down payment like we did? -- Aaron V.
DEAR AARON: Thank you for sharing your success story. Virtually every married couple can accomplish the same results if they are determined to save a down payment. I'm certain it wasn't easy dealing with tenants and toilets for almost three years, but the result was worth the effort.
DEAR BOB: Last June, we listed our vacation home for 12 months on a net listing. The realty agent warned us the market for second homes was slow, but since we were not in a hurry to sell, we weren't concerned. She didn't bring us any offers in 1990, although she showed the home several times.
In January we met a couple at a social event and they asked us why we didn't accept their offer for our vacation home. That was the first we knew about it. Apparently, their offer was so close to our net price the agent never told us about the offer. This occurred last September. If we had known about the offer we would have accepted it.
Now the couple is financially unable to buy. I am so mad at our agent I don't know what to do. When I phoned her she said, "I thought that offer was so low you wouldn't accept it." The truth was she wouldn't have gotten much of a sales commission. Is this grounds for canceling our listing with this dishonest agent? -- Barbara W.
DEAR BARBARA: Yes. Your agent breached her fiduciary duty to you. That is grounds for not only canceling the listing, but the state real estate commissioner also should revoke that agent's license.
However, the original cause of your trouble was the net listing. Such listings are illegal in some states because of the high risk for property sellers. As you learned the hard way, some dishonest agents fail to present all purchase offers when there is a net listing and the realty agent won't earn much sales commission.
To illustrate, suppose your vacation home was listed at a net price of $50,000 with the agent to receive as commission anything above that amount she can get a buyer to offer. If a buyer offers only $50,000 the agent might be tempted to forget to tell you about that offer. Apparently that is what happened. But if the agent obtained a high offer, such as $70,000, you would be rightfully upset with the agent for failing to inform you of the true market value of your property. Now you know why net listings are a bad deal for everyone.
DEAR BOB: About three years ago, I inherited several apartment buildings from my brother. They can be wonderful moneymakers and I love the income. But managing them is a major problem.
The company that was managing them when my brother died was doing a terrible job. It is a wonder the city didn't condemn the buildings for the numerous safety code violations. I hired another management company that supervised the necessary repairs and improvements. But then they got lazy and started renting apartments to undesirables.
The police notified me there were drug arrests in one of my buildings and I had better clean it up or it would be seized. I then hired another so-called professional management company with a certified property manager who said he would get things straightened around.
Now I discovered he is charging me much more for repairs than he is paying the workers. I am ready to fire him, but where can I get an honest, competent professional manager? -- Patty R.
DEAR PATTY: Finding a competent professional manager is not easy. Personal recommendations from other property owners is the best way. As you discovered, even a certified property manager designation is not a guarantee of competency.
If you are not already a member of your local apartment owners association, I suggest you immediately join. Talk with the executive director about recommendations of top-quality professional managers. Go to the monthly meetings and talk with fellow apartment owners to learn how they manage their properties. You may find you can handle the properties yourself if you hire top-quality resident managers and then supervise them closely.
DEAR BOB: I am thinking about selling the home where I have lived almost 32 years. I own it free and clear, but it is too much work for me to maintain. Since my late husband left me with a nice income and good investments I don't need cash from the sale.
After reading your columns it occurred to me I can sell my home for a 10 to 20 percent down payment and then carry back a mortgage for the balance for 10 years or so. What do you think of this idea? If you like it, how much interest should I charge? -- Julieanne H.
DEAR JULIEANNE: An installment sale will be ideal for your situation. It can increase your retirement income. Additional benefits include being able to make a quick, easy sale for top dollar. Home sellers who can finance their sale usually have no trouble selling their property.
Since I presume you are 55 or older and qualify for the "over 55 rule" $125,000 home sale tax exemption, up to $125,000 of your sale profits will be tax-free. However, the interest income is taxable as ordinary income. In today's market you should be able to get 9 to 10 percent interest on your mortgage. That makes a nice safe investment for you at a higher yield than you can probably earn elsewhere with equal safety. For further details, consult your tax adviser.
DEAR BOB: I have over $75,000 equity in my home, which I am considering selling. It has a first mortgage at 9 percent interest of about $60,000 from an S&L.
If I can get $140,000 for my house with a $14,000 cash down payment, do you think I should carry back a $126,000 wraparound mortgage at 10 percent interest? -- Rymer R.
DEAR RYMER: You neglected to tell me if the existing first mortgage has a due-on-sale clause. If it does, forget about carrying back a wraparound mortgage because the lender might well call the first mortgage after learning about the sale when a new insurance policy is received. However, if the first mortgage does not have a due-on-sale clause, such as an older VA or FHA mortgage, your situation is ideal for a wraparound mortgage. The borrower would make one monthly payment to you and you can use part of that money to keep up payment on the underlying first mortgage. If your wraparound mortgage has a 10 percent interest rate, you will earn 10 percent on your $66,000 net loan plus a 1 percent differential on the underlying $60,000 loan at 9 percent interest. For details, consult a local real estate attorney.
DEAR BOB: In 1990, we extensively upgraded our home. We put on a new roof and completely painted the interior and exterior. In addition, we spent several thousand dollars on new landscaping. Can we deduct any of these expenses on our income tax returns? -- Lacy C.
DEAR LACY: No. The costs for repairing or improving your principal residence are not tax deductible. But save all your receipts because when you sell your home the capital improvement costs should be added to your purchase price to arrive at an "adjusted cost basis."
But the problem is determining what is a repair and what is a capital improvement. The Internal Revenue Service says a capital improvement enhances or extends the useful life of the property. The new roof clearly falls into this category. So does the new landscaping. But paint generally is considered to be a repair, not a capital improvement. However, since it was part of an upgrading program, you might argue that the painting cost also should be capitalized. Your tax adviser can give you details.
DEAR BOB: When my job was recently transferred, my wife and I had to sell our home and buy a new one. Selling the old home was no problem because my employer's relocation company bought it. But we looked at dozens of homes before finding one we both liked.
When it came time to write up our purchase offer, the real estate agent wrote: "All cash to seller, buyer to obtain maximum mortgage available." But my wife insisted on spelling out the details of the mortgage we wanted, such as the amount, interest rate, fees and term. That almost caused us to lose the house because the seller thought we might not be able to get that mortgage.
Everything turned out well and we are now moved into our new home. However, I have been thinking how close we came to losing this house. Do you think it was a mistake to include the finance details in our purchase offer? -- Max R.
DEAR MAX: No. Your wife was correct to insist on including a detailed mortgage finance clause in your purchase offer. If she had accepted the one suggested by the real estate agent, you would have been obligated to buy even if you had not been able to obtain the mortgage you wanted.
DEAR BOB: I recently inherited $63,000. I think my wife and I should use this money to pay down our 9 percent mortgage, which has a balance of about $105,000. But she thinks we should put the money into a money market fund.
It seems foolish to earn less than our mortgage is costing. Don't you agree? -- Bo L.
DEAR BO: No. Listen to your wife. You have a very attractive home loan. If you pay down its balance by $63,000, you have just invested your money at 9 percent interest. But the worst part is you won't be able to easily get it back if you need that money for an emergency or an investment. Nor will your prepayment reduce your monthly mortgage payment. To make matters worse, your lender might even charge you a prepayment penalty.
I'm sure you realize your 9 percent mortgage doesn't really cost you 9 percent interest. If you are in a 28 percent income tax bracket, considering the tax savings for your itemized interest deduction, you are only paying about 6.48 percent on your mortgage.
I suggest you find a safe place to invest your $63,000. It will be a nice feeling to have that large amount readily available in reserve.
Readers with questions should write Bruss at P.O. Box 280038, San Francisco, Calif. 94101.