Think twice before buying rental

DEAR BENNY: In approximately one year, my wife and I are going to sell our house and move to Arizona. Selling the house is not a problem, but we have decided to rent out the next property we buy, whether it be a house or condo. We have already inquired about a real estate agent and we have talked to a friend of a friend over the telephone. We intend to meet with him on our next trip to Phoenix this year.

My question is: How do we determine what an appropriate fee is for this agent's services? I know he will not do this house hunting for free, but is there a contract drawn up, is there a flat fee or is there a rate depending on the number of houses/units we look at? Are there other things we need to know ahead of time? --Patrick

DEAR PATRICK: First, I am glad to hear that you don't think you will have problems selling your current house. That's good news.

There are many things you need to know in advance, in addition to finding a good real estate agent. First, do you really want to be a landlord? Have you reviewed the landlord-tenant laws in Arizona? Are they pro-landlord, pro-tenant or neutral? I practice law in Washington, D.C., where the law and the courts are extremely pro-tenant.

If you are going to buy into a condominium (or homeowners association), do their rules permit owners to rent or are there restrictions? Because the secondary mortgage market (such as Fannie Mae and Freddie Mac) imposes restrictions on the number of owner-investors in community associations, many such associations have amended their legal documents to comply with these restrictions.

As for determining what the real estate agent will charge, just ask him/her to provide you with a written fee schedule. Such a schedule should be attached to a rental listing contract. For example, if a tenant calls in the middle of the night complaining that the toilet is not working, how much will this cost you? And more importantly, is this something the agent will handle or will you have to take care of it yourself?

Once you get the fee schedule, I suggest you contact other agents in the area and compare prices.

One final note: In today's economy, it may be difficult for you to get a mortgage loan for investment properties. Unless you plan to use all of the sales proceeds for the new property, make sure you have lined up a potential lender before you embark on this journey.

DEAR BENNY: In a recent column on downpayment assistance you indicated that the $4,000 in excess of a $24,000 gift "may have tax implications" for the donor's estate. Why couldn't the mother give a gift of $12,000 to her son and $12,000 to her daughter-in-law and the father give another $12,000 to each, for a total annual exclusion of $48,000? Therefore, there would be no estate tax implications. --Gaylan

DEAR GAYLAN: The way I read the question is that the mother and father gave more than $24,000 just to the son. However, you are correct. The mother can give $12,000 to her son and the same amount to her daughter-in-law, and her husband can give the same amounts to each, thus avoiding any tax implications.

Please note that as of Jan. 1, 2009, the gift tax exclusion was increased to $13,000.

DEAR BENNY: In a recent column you answered a reader's question about paying off his home mortgage. The reader wanted to know whether he should get back his original deed. In your reply, you said, "You want the lender to send you (1) the original promissory note, marked 'paid and canceled,' and (2) the original deed of trust (or mortgage document), again marked 'paid and canceled.' "

My wife and I paid off our mortgage with Bank of America in 2007, but we did not receive the items you mentioned. Bank of America did, however, file a "deed of release" with the county recorder of deeds. I'm wondering if that is enough or if I should contact the bank and ask for the original promissory note and the original deed of trust. --Herb ...CONTINUED

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