Get agreements with contractors in writing

Dear Bruce: Since we were being transferred for a couple of years away from our home, we decided to rent it out since it would be difficult to sell. We needed to make considerable repairs to the home. This is where the problem comes in. We made a verbal deal with a friend. He was to give us about $5,000 worth of repairs; we would pay him with services that his company required. The work got done, but we were shocked when we received a bill from a local contractor for $5,000 and our guy did nothing on the house. Our original verbal contract says that there was to be no exchange of money, only a trade of services. Now whom do we settle with? The man who did the work says that he wants to get paid. Where do we go from there? – B.H., via e-mail

Dear B.H.: Get your checkbook out. In most states, he could still file a mechanic’s lien against your home, which would make it impossible for you to sell until you settle with him and, of course, the interest meter would keep on going. Your friend – and I suspect that word is not appropriate – is the guy that you should be angry with. Verbal contracts are not worth the paper they are written on.

Dear Bruce: I live in Michigan and am thinking about buying a rental property that needs little or no repairs at a reasonable price. What would be my best option with mediocre-to-poor credit: A loan from my credit union or taking money from my 401(k)? How long can I sit on a house without renting it while repairing it and deduct the property as an expense? – R.H., Muskegon Heights, Mich.

Dear R.H.: If you think it’s going to be easy to find a rental property that needs little or no repairs at a reasonable price, think again. You don’t find these on every street corner, and when you have miserable credit, your alternatives diminish geometrically. I would not withdraw money from a 401(k) for this purpose. That’s a tax advantage that you will not get back. Whether your credit union will give you a secured loan or a mortgage depends on a lot of variables. Sitting on rental property without renting it is an extremely expensive venture. Amateurs have been known to get their fingers severely singed. If I were you I would consider trying to build up my capital and credit reputation and learn a whole lot more about rental real estate than you seem to know before you attempt to get your feet wet.

Dear Bruce: My wife and I made a bid on a home at the full asking price because we still thought it was a great buy. The sellers, however, would not give us a reasonable amount of time to secure a mortgage, as they wanted to close on it in less than a month’s time. We wanted time to have the property inspected, but they are reluctant to allow this. Further, they only gave us two days to have our attorney review the contract, which was just not enough time. We would still like to buy the house, but we need time to raise the money, and we are certainly not going to have it done without an inspection. What are your thoughts? – H.H., Henderson, Nev.

Dear H.H.: Run, don’t walk. This deal has disaster written all over it. If the real estate market is a very hot one, there’s a chance that they can get away with a stunt like this. However, it is necessary to give a potential buyer the opportunity to secure a mortgage, which can take upwards of six weeks. In addition, to purchase a home without a proper inspection is courting disaster, and clearly, your attorney should review the documents. I’m sure there are other homes just as nice, and at a great price, just waiting for you.

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

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