DEAR BOB: I have followed your frequent recommendations for prospective real estate investors to take courses at community colleges. You are 100 percent correct. I have learned so much and met dozens of interesting people by taking the real estate principles, investment, finance and law courses. But I dropped out of the appraisal class, as it was deadly boring. My wife and I bought our first investment property, a run-down, two-family duplex, which we are now fixing up on the weekends. However, my employment situation is unstable and I am thinking of getting my sales license. What do you advise? – Mason G.
DEAR MASON: Unless you want to sell real estate for property sellers to earn sales commissions, I suggest you do not obtain a real estate sales license.
Purchase Bob Bruss reports online.
You don’t need a sales license to be an investor. As an investor, you can earn far more profits than most sales agents earn.
Although I’ve had my real estate broker’s license for 38 years, as a realty investor I have rarely used it to participate in the sales commissions as a buyer or seller.
The reason is I learned if I insist on receiving part of the commission, listing agents won’t call me with their best deals. When I’m the seller, I discovered it’s best to list with the best agent in town and let him or her earn the sales commission.
HOW MUCH SHOULD PROPERTY TAX BE?
DEAR BOB: My wife and I have owned our home about 26 years. Each year we receive notices the property taxes are increasing. As retirees on a fixed income, we are concerned we might be taxed out of our home. Although we love our community and don’t want to sell, we’re wondering if there is any way to tell how much property taxes should be as a percent of market value? – Randolph P.
DEAR RANDOLPH: There is no reliable answer to your question. If your annual property tax is 1 percent of your home’s market value, or less, you have a bargain.
That’s the “standard” established by California’s famous Proposition 13 property tax revolt, which limited property taxes to 1 percent of market value, plus maximum annual increases of 2 percent. However, when a California property sells, it is reassessed at its full sales price market value, plus voter-approved extra taxes such as for schools, police and fire.
Each property situation is different. For example, Florida property taxes in relation to market values are very high. But Florida has no state income tax. Other states have similar circumstances.
However, if your property taxes exceed 2 percent of your home’s market value, you have high property taxes.
GIFT OF DEPRECIATED PROPERTY CAN HURT THE DONEE
DEAR BOB: I own a fully depreciated rental house, which I have owned for many years. I would like to give it to my daughter who will sell it to help provide for her two children after her no-good husband left town. The difference between the market value and my basis for the free and clear rental house is at least $200,000. My CPA says I shouldn’t make this gift. What do you advise? – Marg C.
DEAR MARG: I presume your CPA advised you must file a gift tax return, and the net equity in the rental house will be subtracted from your gift tax and estate tax exemption (presuming the rental house is worth less than the $1 million gift tax exemption).
If your daughter sells the rental house, her adjusted cost basis will be the same as your depreciated basis. That means she will have a large taxable profit.
However, if she decides to keep the rental house for its rental income, that revenue can provide for her family. Then she will own a presumably appreciating asset which provides income for her family for many years.
The new Robert Bruss special report, “How the New Tax-Deferred Realty Exchange Rules Can Make You Very Wealthy,” is now 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.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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