Ms. Lank: We are 63 and 68 years old and still working. We sold our home and relocated across the country a couple of years ago for our current jobs. We are renting a house and really have no desire to be homeowners. Of course, we miss the interest deduction on our taxes! But we have no debt and have substantial savings, individual retirement accounts, health savings accounts, etc.
What is your perspective on the wisdom of purchasing a home or condo? Any advice would be appreciated. — askedith.com
Answer: Every family's situation is different, and when it comes to finances, there's no one right way to do things. It sounds as if you've been making sensible financial decisions along the way. If you prefer to remain tenants, you have my blessing.
Dear Edith: My husband says Realtor commissions are set by state law, but I think they're set by local law because they seem to be different between cities. Which is right? — P. I.
Answer: Neither of you are right. There are no standard rates. Commissions are completely negotiable. It's true that they seem pretty much the same in any given community, but there are more exceptions than you'd think.
Much Higher Dividend
Edith: I don't think your answer to the escrow question is complete. Many banks do not require an escrow account if you have a certain amount of equity in your house. Also, insurance companies immediately notify your bank if you get behind on insurance payments. It differs from bank to bank, but some of the banks are very slow to return your escrow when you sell your home.
If your bank allows you to not have an escrow account, you are much better off putting your money in a fund that pays a much higher dividend. The banks like escrow accounts because they get to use your funds for very long periods of time while paying very low interest rates. — askedith.com
Answer: Thanks for taking the time and trouble to send your opinion. I'd love to hear where you find "much higher dividend." These days, it doesn't seem to matter much whether you accumulate the funds to pay property taxes and homeowners insurance premiums on your own or send in funds to let the lender take care of them. Far as I can see, it's very low interest rates either way.
Renting the Homestead
Dear Ms. Lank: My husband and I were planning to downsize, but then he had to go to a senior facility. Medicaid rules allow me to keep our home, but it's too big for me. I was told I'm not allowed to sell it and use the money to buy something smaller. What if I kept it, rented it out and used the income to get into a smaller place? Would that work? — R. I.
Answer: I'm afraid not. If you leave with no intention of coming back or converting your home to an income-producing property, it will be counted as an asset in figuring your husband's Medicaid eligibility. And anyhow, as a senior citizen with no real estate experience, you could be asking for trouble if you take on the job of landlording.
Dear Ms. Lank: I am in my 20s, and I have my first real job. It's a steady one. My next goal is to become a real estate investor. I don't have much money to invest, but I do have spare time. I'd be grateful for advice on how to start. — R. Q.
Answer: Begin by reading ads, emailing and making phone calls until you locate a real estate broker who is interested in your project. Then, contact a lawyer who specializes in real estate (your broker may have names to suggest) and an accountant. You'll be relying on a home inspector as well.
It's wise to have the team lined up ahead of time. Before you make your first commitment, your inspector and accountant should analyze the figures of a prospective purchase, and your lawyer can read over a proposed purchase contract.
Do some reading. You won't need the get-rich-quick seminars and courses offered on cable TV. All the same material is available at your local library and on the internet. One way to start learning the business, especially if you're short on capital, is to partner with an older investor who may be tired of the day-to-day demands of landlording. Again, a broker might have suggestions. With any luck, you'll find a mentor.
Plan on starting small with only a few units, and make your first purchase in a familiar neighborhood not far from your own home. Forget about vacant land; it produces no income, requires tax payments and ties up your money. Even experts make mistakes there. Land is no investment for a beginner.
Contact Edith Lank at www.askedith.com, at [email protected] or at 240 Hemingway Drive, Rochester NY 14620.