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Keeping a Property When You Move Away

Dear Monica: I am being relocated to another state and don’t know whether to sell my home here.  I may need to sell in order to buy in my new location but I worry that I won’t be able to afford to live here again if I want to move back.  What would you advise?  Mary E.

Dear Mary: If you think you will ever want to move back to the Bay Area, I would advise you not to sell your home now unless you have to.  See how you like the place you are being transferred to as well as the job you will be doing there.   If ultimately you decide you want to stay in the new location, then you can sell your Bay Area property knowing that it is a good decision for you.

The real estate market here is one of the strongest in the country and while it may not remain that way forever, it will stay strong as long as the economy here continues as it is.  Too often homeowners sell when they leave the area and then cannot buy their former home back when they return because the price is too high.

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Condo Reserve Funds

Dear Monica:  I own a condo in a small complex of six units.  At our recent Homeowner Association (HOA) meeting we discussed our low reserve account and some felt we should raise HOA dues to build up greater reserves.  What do you advise?  Howard G.

 

Dear Howard:  This is a question that comes up often especially when prospective buyers are considering a unit governed by an HOA.  Many HOAs would rather keep required monthly dues low and when large expenditures are needed,  have a special assessment paid by each owner.  This works well for many complexes but the risk is that an owner won’t pay the assessment when it’s due and the HOA must record a lien on the delinquent owner’s property.  To avoid this, many HOAs maintain reasonable reserves. Other complexes, especially large ones, build substantial reserve accounts that are used to pay all or most of the repairs and replacements needed, such as a new roof, painting, termite repairs, etc.

If a buyer is considering a condo or townhouse, he/she should look carefully at the reserve account to be prepared for future assessments if the reserves are low.  This should be a negotiating point with the seller and factored into the price and terms.

 

In-Law Units

Dear Monica: We want to find a property that has room for a secondary unit for my parents to live in. This is difficult to find within local zoning laws and our budget. Do you have any advice? Jenny M.

Dear Jenny: Many cities and towns are expanding their zoning laws to make it easier to add a second unit to residential property, even properties zoned for single family homes. If a property has reached the maximum allowable square footage for the lot size, you will have to find space for an in-law unit within the existing structure. It may be possible to convert a garage to living space but check with the local laws about this. Some cities require a residence to have at least one covered parking space while other cities allow all parking spaces to be uncovered. There are also limits on the size a second unit can be as well as other rules. Check the local zoning laws for guidance.

Buying A New Home   

 

 

Dear Monica:  I want to buy new construction and don’t know how buying a newly built home differs from buying an existing one.  What would you advise?  Daniel B.

 

Dear Daniel:  If you are buying a home that has just been built, you will have the advantage of the builder’s one year warranty for patent defects, as well as a 10-year warranty for latent defects.  The process for claiming defects in California is governed by SB800.  Your contract for buying a new home should include SB800 as an addendum.  It would be to your advantage to buy from an established builder who will be in business for a long time should you need to request repairs.

 

The property should have a final inspection signed by the city, and also a certificate of occupancy, if the city provides this.  Your lender, if you are getting a mortgage, will require this as well.  You should do your own termite and home inspections so that you can independently evaluate the quality of the construction, as well as produce a punch list of items to be repaired before close of escrow.  Once you move in, you may discover more items to be repaired and these would likely fall under the warranty.

 

Do Beautiful Gardens Add Value?

 

 

Dear Monica:     I am ready to put my home on the market but am wondering if I should wait a month or two when I know the garden will be in full bloom and look its best.  What would you advise?  Diane G.

 

Dear Diane:  There are a couple of important things to consider when making this decision.  The first and most important, is the state of the market.  If it is very strong now, but you are not certain it will be as strong in two months, I would not wait to sell my home.  I would put it on the market now and add flowers to planting beds and pots to enhance the beauty of the property.

 

But if the market is stable and you think it may be even stronger as the spring selling season continues, then I would wait until your landscaping is in full bloom.  A beautiful garden not only adds visual value but it extends the usable space of your home.  In California we can use our outdoor space at least six months of the year and with heat lamps and other devices, can extend the usability even longer.  Buyers will be captivated by a garden that offers beauty, as well as places for entertaining and quiet enjoyment.

Does My Property Qualify for a 1031 Exchange?

 

 

Dear Monica:  I am in the process of a divorce and am selling a rental property that I own with my spouse.  I would like to do a 1031 Exchange with the proceeds of my ownership portion.  May I do this?  Philip T.

 

Dear Philip: There are many rules for exchanging an investment property into another investment property and deferring tax on the gain.   It can be a very simple exchange, or a more complex one, especially if exchanging only one owner’s portion as part of a divorce, as you would do be doing.  Some issues you need to think about are how title is held on the property you are selling because the property you buy may have to be held the same way.  Another issue is if the property you are buying is in another state will California allow you to defer the tax you owe them?  California may impose a capital gain tax when the out-of-state property is ultimately sold. There are many other issues as well.

 

You should first consult your attorney regarding how your ownership portion would be regarded by the IRS.  You should also consult an accountant well versed in IRS and California exchange rules to be sure you meet all requirements. If your exchange fits the rules, you will be able to roll your proceeds into another like-kind property without it being a taxable event.

Should I Do My Own Inspection?

 

 

Dear Monica:  I am going to make an offer on a property and the seller has provided a home inspection as well as many disclosures.  I would like to have my own contractor look at the property rather than relying solely on the seller’s report.  What would you advise?  Robert G.

 

Dear Robert: I think it would be a very good idea for you to have your contractor look at the property on your behalf.  You will need the seller’s permission to do this but this should be easy to obtain.

 

With the fast pace of the real estate market here, and the fact that multiple offers are common, having your own consultant review the property condition will make you feel more confident about it.  And doing your due diligence before making an offer means you won’t have to ask for a property inspection contingency.   Most sellers choose the best non-contingent offer rather than one with an inspection contingency.   Good luck with your offer.

 

Transferring Your Property Tax Base (continued…)

 

 

Dear Monica: I am over 55 and know that I can move my property taxes within my own county (Prop 60) or to 11 other counties (Prop 90), but I want to move to a county not allowing Prop 90 transfers.  Will I ever be able to do this?  Beth C.

 

Dear Beth: The California Association of Realtors (CAR) has proposed a Portability Initiative that would greatly expand your ability to move your property tax base.   It would allow people 55 years of age or older to move to any county in California and take their tax base with them, and not be restricted to buying only properties of equal or lesser value than the one sold.  If they bought a more expensive property, they could keep the old tax base for the portion equal to the sale price of the sold property and pay at the new rate for the portion exceeding this.  There would be no limit to the number of times this could be done.

 

Home prices have risen substantially in California in the past decades and two tax issues keep longtime homeowners in their homes: capital gains taxes, and property taxes.  This Initiative addresses the second issue, property taxes, by expanding the ability to carry ones old tax base to any new home.  CAR is gathering signatures now to qualify this Initiative for the November ballot.

Secondary Dwelling Units   

 

 

Dear Monica:  I have a detached guest house on our property and we would like to rent it to have some additional income.  I am in a zone of single family homes and don’t know whether a second unit would be allowed.  Can you advise?

Charles B.

 

Dear Charles:  It is probable that you will be able to convert your guest house to a secondary dwelling.  Nearly two-thirds of California cities and counties allow secondary dwelling units, owing to a lack of affordable housing and other compelling reasons.  And last year new laws took effect in California relaxing some of the previous requirements.

 

These ordinances allow homeowners to generate rental income, allow older owners to age in place by providing housing for care givers or family members, and a host of other uses.   Many cities require that the owner must live in one of the units in order to rent out the secondary one.  But some cities allow both units to be rented to third parties.  There are rules for parking, for obtaining variances if the unit exceeds the allowable limits on size and setbacks, and many other items.   Check with your city to determine what the specific rules in your neighborhood are for adding or converting space for this unit.

 

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