DEAR BOB: I feel like we made all the first-time-investor mistakes. A year ago, we bought a house in a new neighborhood one hour away from our current home. We were offered no mortgage payments for six months, but then we had to sell or refinance. When we tried to sell or rent the house, we learned the builder sold all 20 houses to other investors who were doing the same thing. We sold the house for $90,000 less than our purchase price, and will have to come up with $33,000 cash to close the sale. Our monthly payments of $3,000 are way above the rental market of about $1,750 per month, plus a $100 monthly homeowner’s fee. Is there any way out of this nightmare? –Zaneta M.

DEAR ZANETA: After reading, and re-reading, your e-mail, I can’t figure out why you would buy such a rental house an hour away from your residence under those very unfavorable purchase terms requiring you to sell or refinance within just six months.

Purchase Bob Bruss reports online.

I don’t understand how the house could lose $90,000 in market value in just six months and why you have to come up with $33,000 cash to close the sale to your buyer. Obviously, you grossly overpaid for the house.

The only good news is, because you purchased the house as an investment, you can claim a capital loss tax deduction. Please consult your tax adviser and a sharp real estate attorney for more details.

INSTALLMENT SALE MORTGAGE IS SMART FOR PROPERTY SELLER

DEAR BOB: I plan to sell my free-and-clear income property. I want to carry back a large first mortgage for five years to defer the capital gain tax. How can I prevent the buyer from paying off the loan prior to the fifth year? –Richard S.

DEAR RICHARD: Depending on state law where the rental property is located, you can include a stiff mortgage prepayment penalty.

However, if you and the buyer agree on a reasonable interest rate, such as 6 percent in today’s market, chances of your buyer paying off your installment sale mortgage early are very small. A local real estate attorney can advise you on exact mortgage terms to discourage early prepayment.

THE BEST BOOK ABOUT INVESTING IN RENTAL HOUSES

DEAR BOB: Not too long ago, you wrote your personal preference is to buy single-family rental houses rather than apartment buildings as investments. Are there any good books about investing in rental houses? –Dena W.

DEAR DENA: The best book on investing in rental houses is “Building Wealth One House at a Time” by John W. Schaub (McGraw-Hill, New York, 2005). It is available in stock or by special order at local bookstores, public libraries, and www.amazon.com.

The new Robert Bruss special report, “How to Earn Your First Profit When Buying Your Home or Investment Property Right,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery 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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