Thinking of buying a foreclosure? Be cautious
Q: What are the risks of buying a foreclosed home, such as at an auction? Do you recommend buying a foreclosed house as my first home?
A: Here are a few of the risks:
First, the unhappy homeowners who are losing their house do not have to let you in to inspect it. You'll have to buy without seeing the interior, which just might be trashed.
Next, the lending institution that is forcing the foreclosure auction will usually bid the amount due on its mortgage. You'd have to bid more to win the property. If you have the winning bid, you are, in most areas, required to pay some or all of the price in cash then. Professional investors often have a line of credit lined up and ready to go.
Lastly, you should do the whole thing under the guidance of a real estate lawyer, for help with the procedures and to make sure you're not buying any legal problems.
If, on the other hand, you're asking about buying REO, "real estate owned" by a lender that has already taken the property at a foreclosure auction, that's different. For that, financing is sometimes available, but judging from my mail, the process can be lengthy and frustrating.
Avoid a complicated situation
Q: I have been paying a mortgage on my home for five years. I may need to move across town to help a relative keep her place and pay the rent to live there. What are my options? Sell this house? Rent it? For how much? Take out an equity loan on the house I own and use it to pay my rent on the other? What would be the most profitable way to go about this?
A: Without knowing more about the situation, I suspect the best solution would be to stay out of it. Your relative could simply look for a different boarder, without involving you. Otherwise, I suspect you'll be asking for trouble.
Home can be a gift to daughter
Q: I have a second home that I have been renting to my daughter and her friend for five years. I have been depreciating the home as rental property. I would like to give it to her. What, if any, tax ramifications may there be if I just turned it over to her? There is no mortgage on the home.
A: You can give your daughter more than $1 million with no federal gift tax due. It comes off what you could leave her tax-free at your death. She also takes over your cost basis, which has, of course, been reduced each year by the depreciation you claimed.
Edith Lank will respond to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at firstname.lastname@example.org.