Smart Money: Timeline for repairs depends on home's condition

Dear Reader: Not knowing exactly what needs to be repaired makes this a difficult question to answer. In many instances, the wisest thing is to see whether the new owners would want to deal with the cosmetic issues themselves. If these issues are far along in disrepair, you’ll likely be obliged to make the repairs and incorporate the cost into the sales price.

Condo financing conundrum

Dear Bruce: My wife and I have decided to sell our house and buy a condominium. We have around $200,000 in equity, and we are looking at condos in the $300,000 to $400,000 range. Looking to the future, it seems to make sense to take out a 40-year or interest-only loan, owing to the fact that this will be where we live for the remainder of our years, which will cut down our house payment considerably. Are there any financing programs out there for seniors? —Reader, via e-mail

Dear Reader: You’ve indicated that you will have about $200,000 to put down on your $300,000 to $400,000 purchase. You haven’t shared with me what other assets you have and how much they are earning. It’s doubtful that you’ll get a 40-year loan, though possibly a 30-year, and very possibly, an interest-only obligation. You should be aware that the interest-only will continue forever because there is no reduction in principal, and you’ll be obligated until such time as the condominium is sold. This could be a good idea if: 1) you’ll have an income to make these payments; 2) your other investments are outperforming the interest rate; and 3) taxes are taken into account.

Most seniors prefer to own outright and not worry about payments. Most are anxious to become debt-free when they retire. This is not to say yours is a bad idea; it’s just different from most of the letters I receive.

Paying capital gains taxes

Dear Bruce: My husband and I have two recreational properties. If we sold one and used that money to build on the other property, would we have to pay capital gains taxes? Is there a better idea? —M.C., via e-mail

Dear M.C.: If you’ve held the properties for more than a year, any tax will be calculated at the capital gains rate, but since you likely have been depreciating these properties, you’ll have to recapture the depreciation. I’m sure your accountants can explain that to you. I don’t know any practical way to avoid capital gains taxes. In this real estate market, be glad that you have a gain. Many folks would love to be just breaking even.

Understanding home insurance needs

Dear Bruce: I just received a 33 percent increase on my insurance premium for my home. The insurance company says it is for additional coverage, but for what, I don’t understand. What type of insurance should I consider for my home? —Reader, via e-mail

Dear Reader: I don’t know enough about the insurance company’s “additional coverage” to comment specifically, but there are some basic policies that homeowners should take into account. For instance, fire on the building, extended coverage for water damage and similar hazards, and coverage on the contents for the value of the contents.

By the way, when discussing “value,” it is replacement, and not fair-market, value. If you have a five-year old sofa, you’re going to get very little money for selling it at a garage sale. But if it’s damaged in a storm or fire, replacing it will cost today’s prices. Therefore, replacement value on the contents and the structure of your home is imperative.

Wait out the market

Dear Bruce: I am co-owner of a four-family house in my hometown, but because of a job relocation 10 years ago, I live in rental properties in the city where I work. I rented rather than purchased because my plans were to return to my hometown upon retirement. Because of a family situation, I am not at liberty to move back. Instead, I will be residing in the city of my employment. I am 54 years old and will retire in two years. I will be debt-free within the next 18 months (outside of my monthly rent). I would like to purchase a house. I choose not to consider selling the co-owned property, because the other owner has taken on all the financial matters and cost for the upkeep. In weighing these factors, I’m thinking it may be too late in the game for me to purchase a home because of the short length of time before retirement and my age. —J.V., via e-mail

Dear J.V.: I find little to quarrel about in regards to your decisions over the past decade. It seems you’ve made responsible choices, which have all worked out. Whether you should purchase now is another matter. If I were faced with that decision, given all of the details provided here, I’d postpone the purchase for at least a year. I believe market value of most homes is going to continue to plummet, and there will be better buys on the horizon a year or two from now. If you see the market steadily increasing, that would be the time to jump in and buy. I think it’s a little early just now.

Bruce Williams is a national radio talk-show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.