Inman

Real estate speculators put kibosh on condo purchase

DEAR BOB: On a recent visit to Las Vegas, my wife and I looked at a new condo high-rise now under construction. We enjoy visiting Las Vegas three or four times annually and have talked about retiring there because there is no state income tax. But the developer of the condo we are considering for purchase admits it has “sold” a lot of units to real estate speculators who are unlikely to ever move in. These so-called investors will probably unload their condos shortly before they have to take title when construction is complete. My wife and I don’t like the “smell” of this situation and are shocked the developer would “sell” to these speculators. But we really like the location, the price and the features of the condo complex. Would you buy? – Kirk T.

DEAR KIRK: There should be a law against real estate speculators who hope to profit from tying up a property before construction without ever taking title or adding any market value.

Purchase Bob Bruss reports online.

I shall never forget the first and only time I was called a real estate speculator. I purchased a run-down, nine-unit apartment building and immediately began adding value by renovating the hallways. My next project was to gradually renovate each apartment. One tenant, who had a very low rent, said, “You’re just a real estate speculator, aren’t you?”

After that, I resolved to always add value to any property I acquired, rather than just hoping it might appreciate in market value, as speculators do.

Many savvy developers, especially in South Florida and other high speculation areas, impose special requirements in purchase contracts to discourage speculators. Examples include requiring resale penalties within 18 months after purchase and prohibitions on rentals.

As for your situation where there are a large number of speculators, you might consider waiting to purchase until those speculators “dump” their condos on the market shortly before they have to perform and acquire title.

HOW MUCH SHOULD CONDO LAWYERS CHARGE TO LIMIT RENTALS?

DEAR BOB: Thank you for your answer to another reader about limiting the number of rentals in a condominium building. I am on the board of directors of our condo homeowners association. We are confronting the situation of too many renters. Of our 44 units, we now have 19 rental units. Buyers are having trouble obtaining mortgages except at higher-than-market rates because we have so many rentals. The board hired a local condo attorney who drafted a proposed CC&R (conditions, covenants and restrictions) amendment to abolish rentals. It must obtain approval by a majority of members according to our rules. But the attorney has billed us $3,700 so far. Don’t you think this is excessive, although she attended several meetings to explain the amendment? – Jose K.

DEAR JOSE: You got a bargain. I own a condo where we recently paid a condo attorney $5,000 to draft a similar amendment to our CC&Rs restricting rentals. We felt it was a very profitable expenditure, especially after we got more than 90 percent approval.

However, we didn’t let the rentals get out of control. As I recall, we had three or four rentals out of 63 units. The condo owners became concerned about the conduct of a few renters, plus the difficulty buyers were likely to encounter from mortgage lenders if we let the rental situation get out of control.

But we had to “grandfather” the few existing rental units or risk possible legal action by those owners. Ironically, after the amendment passed, several of those rental-unit owners have put their units up for sale.

TO DEDUCT INTEREST, MORTGAGE MUST BE RECORDED AGAINST THE HOME

DEAR BOB: I loaned my son $45,000 for the down payment on his home. He has been deducting the interest he pays me on his income-tax returns. But his tax adviser says that is illegal because I didn’t record my loan against his house. Is this true? – George R.

DEAR GEORGE: Yes. You made an unsecured $45,000 personal loan to your son. I’m sure you trust him that he will pay the loan as agreed.

However, for your son to deduct the interest he is paying you on his income-tax returns as an itemized deduction, your loan must be secured by a recorded mortgage or deed of trust against his title.

This is a simple matter to correct. A mortgage or deed of trust needs to be prepared to secure your promissory note. Then it must be recorded against your son’s property title so he can claim the tax-deductible interest he pays you. For details, please consult your tax adviser.

The new Robert Bruss special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” 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 PDF 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
).

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.