Adding pool might not boost home's value

Dear Bruce: My husband has decided that he wants to install a swimming pool in our back yard. The cost of the pool will exceed $30,000. He claims that this will add to the value of our home when we decide to sell it. Others have told me that it does not add any value to the house and that it can detract from the sale. This is a very large amount of money to be spent. If we are going to be getting our money back I guess I could go along, but I would certainly hate to have spent this money and then have to move and lose money on the deal. - Reader, via e-mail

Dear Reader: Your friends' observations frequently are the case. Not only can a pool not be an asset, but also frequently there are a great many folks that don't want the responsibility of a pool. You didn't specify which part of the country you live in. If you live in the northern climate, you may only get four or five months of use out of your pool. If you live in the south or in a state like Florida or Arizona where just about everyone has a pool, then you will get almost year-round use. If you enjoy having the pool, you will get your money's worth. As far as recovering that investment when the house goes on the market, I wouldn't count on that.

Dear Bruce: My wife and I are both retired (on disability) and our two children are married. For the past several years my wife has wanted to enlarge our house. I have repeatedly told her it is not wise to enlarge our house now. She wants to have extra room in case her mom or family comes to visit, which is maybe once a year for a week or two. She says she wants extra room for when all the kids (and grandkids) are home so we all can have a comfortable place to sleep. Please let me know what you think. We are both mid-50s folks who travel a lot. I say no, she says yes. What say you? - T.C., Granstberg, Wis.

Dear T.C.: I vote with you. My answer can be summed up in three words: motel or hotel. You have limited income on disability, and you may use a room, at the most, two or three weeks a year. How in the world can you justify that investment? By all means have your relatives stay at a local hotel. If you want to help pick up the bill, that's fine. I'm sure your children and grandchildren will get a great night's sleep in the local hotel and your money will be earning for you, not costing you.

Dear Bruce: My question is similar to that of many other senior citizens: Should we sell our house and move into an apartment? I'll soon be 78. I receive $804 in Social Security. My house is appraised at $50,000 and is paid for. I am a foster grandparent who works five to six hours a week and I receive a stipend of $2.65 an hour. I love this job. I am still able to do some things to my house, like painting, but I have someone else do the mowing. I continue to pay for supplemental health and life insurance. I receive five free prescriptions a month and my Medicare premium is paid. I enjoy my home, but wouldn't object to apartment life. It definitely is a mental and financial problem. I respect and ask for your personal opinion. - D.F. Enid from Oklahoma

Dear D.F.: You use the term “we,” so I assume that your spouse is still with us. It would appear that you are living a bit close. You didn't mention any other income other than Social Security and your stipend for being a foster grandparent. I'm glad you enjoy it and that you'll continue as long as you can. It would seem to me that if that income dries up, you are up the creek without the proverbial paddle. I might be inclined to start selling the home now, making the assumption that with your taxes, insurance, utilities, etc., an apartment would reduce your outflow. I understand the physical investment, but when you are working as close as you are, the money going out will have a great deal to do with your decision. Your $50,000 invested in various safe instruments is only going to generate around $2,000 a year. The key to this is going to be the cost of housing.

Dear Bruce: I am an officer in the military, stationed abroad. Is it smart to buy land now so that we can build a retirement home in about 14 years? I plan on being retired from the military at that time, but I will have a post-military career. - Reader, Cedar Falls, Iowa

Dear Reader: I would not purchase land looking that far ahead. First, land is an alligator - it eats. You will have to pay taxes, you must have the land insured in case someone gets injured on your property, and furthermore, since you are not around, you have no idea in which direction the community where you purchased this land is headed. Do you know anything about how they will develop the utilities and so forth? It is far better in my view to continue to invest your retirement money in the marketplace. When the time comes, then you can purchase the land, but doing it 14 years in advance would be a very risky endeavor.

Dear Bruce: My daughter and her husband wanted to purchase a home since their monthly rental payments would be higher than their house payments. The house they were renting was up for sale and they wanted to buy it. Their credit was poor due to bankruptcy so I loaned them $40,000 from my 401(k) account for the down payment and also purchased the home in my name. I take the tax and interest deduction on my income tax form as a way of recuperating the $40,000 loan. The house has appreciated from $290,000 to $650,000 in about three years. I am retired and own my own home. I consider this my daughter and her husband's home. They are making the payments. Somehow, I would like to be able to transfer ownership (on the deed and on the loan) to them without incurring any penalties or having to pay any capital gains tax (since I'm not profiting from a sale). They are currently checking to see when their credit is OK to absorb the loan. Do you see any legal problems? - C.D., via e-mail

Dear C.D.: While you may consider it your daughter's house, everyone else considers it yours. If this were your home, where you resided, you would be entitled to a $250,000 exemption. Given the fact that you are not, you will be responsible for a substantial capital gain. If you keep the home in your name until your demise, then at the present time you would be entitled to a $1.5 million federal exemption and next year it rises to $2 million. By all means sit down with a competent accountant before you do anything. There may very well be ways that these rocky waters can be negotiated with the least possible damage.

Dear Bruce: I am a senior citizen with only $10,000 remaining on my mortgage. My home is valued at $240,000. Between my income from investments and a small pension, I live comfortably, but there is nothing left for extras. Would you recommend a reverse mortgage so I can buy a new automobile, or would you advise selling some of my stock to accomplish the purpose? - Retired in California

Dear Retired: It sounds to me like you are a made-to-order candidate for a reverse mortgage. Unless you are determined to leave as much as possible to your heirs, why dip into your savings when you are sitting on over $200,000 of equity in the home? You will receive a check every month and upon your demise the house would be sold to satisfy your debt. Check with a local banker. Other things being equal, this may be a good solution for you.

Dear Bruce: My husband and I have invested in several real estate trusts and other real estate-based investments. We are not knowledgeable about these things and are counting on this money for our retirement. We have no pensions or individual retirement accounts. Recently, my mother's broker told me these are very risky, and he would not have his money in real estate. I've known him for many years, and I don't think he would steer me wrong, but I don't know what to do. - L.G., via e-mail

Dear L.G.: You mentioned that you are not very knowledgeable, and that is a great thing to know about one's self - weaknesses. That's the good news. Why you have no pensions or IRAs is hard to understand, since you have investment money. There are some good tax consequences from IRA investments. The thing that strikes me, however, is that your mom has had a broker for many years, you know him and you trust him. Why in the world would you not use him to give you investment advice? I would agree that some of the investments (which were edited for obvious reasons) that you articulate are extremely risky. It should be noted that they can be quite profitable, but unless your tolerance for risk is substantial, this is no place for you. I would sit down with your mother's broker, ask him what he would recommend, how he would transfer the money from where it is now into more suitable investments and what the costs would be.

Dear Bruce: I am 46, unmarried and male. I have a secure job that pays $130,000 per year. I have 10 more years before I am eligible to retire and collect a pension. In the meantime, I have been making the maximum allowable annual contribution to my employer-matching 401(k) account, which currently has $180,000 in it. I have a small portfolio of securities valued at about $117,000. I have a home in a sought-after country club that I purchased in 2000 for $336,000. It now is valued at $700,000 with a $250,000 mortgage. I am applying two additional mortgage payments per year to the principal so that my monthly mortgage payment is $2,961 a month, which is easy for me to handle. Assuming I can get $700,000 for my home, I'm considering selling, paying off the remaining note and taking the remainder and buying down, somewhat, in a nice (noncountry-club) area here and paying for this home outright so that I have no mortgage. This additional monthly income would be invested or put into savings toward retirement. Aside from the tax implications, the loss of mortgage interest deduction and the hassle of buying, selling and moving, do you think this is an advisable plan? If not, why? - G.C., Las Vegas, Nev.

Dear G.C.: You are on very solid financial ground for a fellow your age. You are asking a question that has as much to do with lifestyle as anything else. You could sell your current home with a modest tax impact. There's nothing wrong with taking a profit. The question is, do you want to buy down? Do you enjoy where you are living and do you take advantage of the country club accoutrements? If not, you may very well wish to sell. The likelihood, but not certainty, is that the property that you are currently living on will not go down in value, and very possibly will continue to increase. That having been said, you may be comfortable with a lower payment and the increased savings.

Bruce Williams is a national radio talk show host and syndicated columnist.

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