Quitclaim deed used for transfer
Author: nicker
Category: Investors Insights
Q:My rental property is more than 80 years old. It is worth about $190,000. I paid $35,000 for it and have been renting to the same tenants for 17 years. I feel they have more than paid for it and I want to sign the title over to them because they have no money and deserve a break. Can this be done without cost?
A: Yes. You can sign a quitclaim deed transferring the title to your donee tenant. The reason for using a quitclaim deed is so you have no liability if the title proves to be defective.
You should have an attorney prepare a short agreement stating you are giving the property in its current “as is” condition and will not pay for any repairs.
The only disadvantage is for your donee, who will take over your very low $35,000 adjusted cost basis (minus the depreciation you deducted), rather than today’s higher market value. But your tenants should be thrilled with your generous gift.
Because the gift exceeds the $12,000 annual federal gift tax exemption per donee, you will have to fill out a federal gift tax return. But no gift tax will be due unless you have given away more than $1 million in lifetime nonexempt gifts such as this.
Q: We just had a house fire with approximately $165,000 paid by our homeowners insurance company for repairs. Before the fire, the house was worth about $250,000. The house was completely redone with new wiring, plumbing, heat, air conditioning, drywall, carpeting and a new kitchen. It was basically gutted inside and outside.
What effect will this insurance claim have on my resale value? If I were a buyer, I wouldn’t be interested in this home. However, as the owner I know the house is actually like new. I feel I should be somehow compensated for the decrease in my home’s market value. When I sell, will my buyers have trouble getting homeowners insurance because of this claim?
A: “Why worry? Your worst troubles will never happen,” as the old saying goes.
Yes, you must disclose to the buyer there was a major fire and the damage was repaired when the house was virtually rebuilt. Many buyers will consider that to be an advantage because the house had to be upgraded to current building codes.
After the fire repairs were completed, the market value probably increased rather than declined. This is not a “stigma” situation, such as if there had been 10 murders in the house.
The fact there was a fire damage claim on your homeowners insurance policy should not prevent obtaining a new policy when the house is sold. Since the house is now upgraded, most homeowners insurance companies give discounts for improvements such as new wiring, hard-wired smoke detectors and new heating, ventilation and air conditioning.
Q: I plan to sell my home next spring. With jumbo mortgages (over $417,000) so hard to get, I am thinking seller financing would make my home sell faster and for top dollar. To protect me, a decent cash down payment would be mandatory. What pitfalls do you see?
A: Presuming you own the house free and clear with no mortgage, easy seller financing is a great way to make your listing stand out from the competition. Also, you will be creating a safe investment for yourself, secured by a mortgage or deed of trust recorded against the home’s title.
However, for your safety you should insist on a cash down payment of 20 percent or more. But don’t make it too high or you will discourage buyers.
When a buyer makes an acceptable purchase offer, be sure to insist that the buyer present a 3-in-1 credit report, including FICO (Fair Isaac Corp.) credit score, from the three major credit bureaus. The buyer can easily obtain this at www.myfico.com. If the buyer has a FICO score below 660, or with any serious unexplained problem such as a foreclosure or bankruptcy, maybe you won’t want to sell to that person.
Q: My fiance and I want to buy a condominium, but we are concerned about the resale value. We have heard condos are harder to resell than houses. However, the few houses we can afford aren’t what we want. If we buy a condo, we will save for a house down payment over the next five years by not having to rent. What should we know about this before buying?
A: Every house and condo buyer is concerned about future resale value. Plan to own the condo (or a house) at least five years and you will probably come out just fine.
An alternative is to “rent to own” (also called lease-option) a house or condo. The option locks in the purchase price at today’s market value. Each month you will earn a rent credit toward the purchase price.
For example, suppose a house or condo rents for $1,500 per month and you negotiate a $500 monthly rent credit with the landlord. That’s $6,000 at the end of 12 months. Try to get as long a lease-option as possible, such as two to five years.
Then, if the market value goes up, you can exercise your purchase option at the price agreed in your contract. If market values drop, or you don’t like the house or condo, don’t exercise your purchase option.
The special report, “How to Profit from Lease-Options (Rent to Own) If You are a Property Buyer, Seller or Realty Agent,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, by credit card at (800) 736-1736 or at www.bobbruss.com. Questions for this column are welcome at either address.
Source:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/09/16/RE4PS10KC.DTL
investment property
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