Paying All Cash for a New Home Left Couple Strapped Financially
QUESTION: Congratulations on your recent articles emphasizing the drawbacks of buying a home for cash instead of obtaining a mortgage. About two years ago, we stupidly paid cash for our new home. We had lots of cash from the sale of our old home so I foolishly let my wife talk me into buying our home free and clear.
Now the home prices in our vicinity have slumped because we are on well water and there is fear of the wells going bad. If the city extends the water lines to our area we will have special assessments to pay. To make matters worse, my wife has become seriously ill and Medicare won’t pay for much of her care.
I wish we hadn’t paid cash for our house so we wouldn’t lose our equity if our home’s value drops, and we would have cash reserves to use for my wife’s medical care. Now it looks like we will have to sell our home for a distress price. Any advice would be appreciated.
ANSWER: Thank you for sharing your sad situation, which could have been prevented if you had purchased your home with a modest down payment and a mortgage for the balance. Now when you need cash it is not readily available, except at high interest rates.
Most people who pay cash for their homes think they are saving thousands of dollars of mortgage interest. That is true. But they overlook the lost income on the dollars invested, plus the lack of security that comes from having an empty bank account.
Until the water problem at your home is solved, the market value of your residence will be held down. If you must sell now, any knowledgeable buyer would heavily discount the offer price to account for the uncertainty.
But, unfortunately, borrowing on your house is the only viable method of obtaining the money you need for your wife’s medical care. Perhaps you can shop around to find a lender in your town offering a reverse annuity mortgage (RAM). FHA recently started making these loans on an experimental basis to pay elderly homeowners a monthly amount. Check with local lenders to learn if RAM loans are available in your area.
Buying Property for Vacation Home Risky
Q: I am considering buying a riverfront lot where I can build a vacation cabin next summer. The cost is only $25,000 and I think I should buy two lots because the monthly payments are only $250 per lot. What do you think of this investment?
A: Not much. The vacation area which you named and I deleted from your letter is notorious for its ups and downs in property values. Many developers have come and gone, usually through the doors of Bankruptcy Court. As long as you are investing money you can afford to lose, be my guest. However, if you cannot finance the construction of the cabin from other sources, next summer you will have to pay off the loans from the developer so that you can obtain a construction mortgage. This could result in high loan payments that you might not be able to handle.
If you really want to buy a vacation cabin, why not buy an existing one where you have no uncertainties? Chances are you can find an anxious seller who will finance your purchase on attractive terms.
Something Wrong If Listing Long Unsold
Q: About a year ago, we listed our commercial-zoned lot for sale with a local realtor. He put up his big sign and advertised it several times in the newspapers but no offers materialized. This realtor has his signs all over town and has an excellent reputation. He says our asking price is realistic but he can’t account for the lack of action. We need to sell our lot but can’t give it away at a bargain-basement price. What should we do?
A: There is a serious problem if your lot is unsold after being listed for sale 12 months. Perhaps the agent isn’t properly marketing it. Maybe your asking price is too high or your terms, such as demanding all-cash, are unrealistic.
Whatever the problem, after a year, it’s time to change real estate agents. Take your lot off the market because it has become what is known as a “tired listing.” After a few weeks, list the lot for sale with another agent who specializes in selling commercial-zoned lots. Check around to find which agents are most successful in your area selling this type of property.
Incidentally, the number or size of “For Sale” or “For Lease” signs you see on commercial properties does not indicate the success of a real estate agent. Many commercial properties are available on open listings so any broker can then put their sign on the property. That accounts for why you sometimes see more than one realty agent’s sign on the same property.
Ability to Pay Not Property Tax Basis
Q: About 18 months ago, we remodeled our home extensively. But the tax assessor just recently got around to reassessing our home. He raised our annual taxes by almost $500, which I think is outrageous. When I protested because I am a widow on a fixed income since my husband died last July, the assessor was very rude and said there was nothing he could do to lower the assessment. He suggested that if I want to appeal, I run the risk the appeals board might raise my taxes. How can I fight this increase since I can’t afford to pay it?
A: The tax assessor is correct. Property taxes are not based on the property owner’s ability to pay. When you make substantial improvements to your property, the local assessor almost always reassesses the property based on the increased value, thus resulting in a tax increase.
However, you should check to be sure he did not over-assess your property. Make an appointment to find out how the new assessment was calculated. If you find an error, you should a contact the local appeals board.
