DEAR BOB: Recently I received an unsolicited letter from my bank offering me a “pre-approved” $100,000 home-equity credit line at no cost for the first year. After that, there is a $50 annual fee. I have about $250,000 equity in my home. Although I don’t need any money, as my wife and I have plenty of liquid investments, it would be nice to have a home-equity credit line, with its checkbook sitting in the drawer. The interest rate is at the prime rate. Should we accept this offer? – Derek D.
DEAR DEREK: That’s a no-brainer. Yes. Accept that home-equity credit line. You never know when you might need quick cash, which you will be able to obtain just by writing a check.
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Personally, I have home-equity credit lines on both my principal residence and a second home. It’s a nice feeling to know I can write a check to tap into those credit lines at the very affordable prime interest rate.
Smart bankers realize home-equity credit lines are the safest, most profitable way they can lend money. The default rate is virtually zero. That’s because homeowners will do everything possible to avoid losing their homes. Even if you never use your home equity credit line, you will enjoy knowing it is available if an emergency arises.
PROS AND CONS OF NEGOTIATING PRICE WITH CONTRACTORS
DEAR BOB: My wife and I decided to landscape our yard. We interviewed two landscapers recommended by friends. One was a totally-obnoxious jerk. The other was quite nice, but his price was much higher than the jerk. So I showed him the written bid from the jerk for similar work. He reluctantly agreed to match it, resulting in a savings of about $3,500. But we were very disappointed in the quality of the completed work. Looking back, I’m wondering if I did the right thing to negotiate on price? – Taylor W.
DEAR TAYLOR: Having done business with many contractors, my experience has been if I successfully negotiated the original bid price downward, I usually received inferior quality work. Of course, I will never know if that contractor’s work might have been inferior anyway.
My policy evolved to never negotiate on price with a contractor. I usually obtain several written bids for the same job. Then I accept the one I like best (not necessarily the lowest bid) but I then hold that contractor to my reasonable standards.
Another secret is to inspect the work every day, without exception. Even if I showed up after the workers left the job site, I let the contractor know if I spotted any problems. Sure, I sometimes make a pest of myself with the contractor. But I learned if you don’t constantly inspect, the contractor will cut corners, as yours apparently did.
CAN RENTAL HOUSE BE TRADED TAX-FREE FOR BEACH CONDO?
DEAR BOB: I own a rental house that I want to exchange for a beachfront condo. Can this be done? – Mr. W. T.
DEAR MR. W.T.: Yes. To qualify for an Internal Revenue Code 1031(a)(3) tax-deferred Starker exchange, you must trade equal or up in both price and equity without taking out any taxable cash (called “boot”).
You will need a qualified third-party intermediary accommodator to hold the cash from the sale beyond your “constructive receipt” until it can be used to purchase the qualifying rental beach condo. More details are in my special report, “How to Exchange Your Way to Tax-Deferred Real Estate Wealth,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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