- Melissa Kellerman
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Tuesday, January 5, 2010
What could be more exciting than taking the leap from renter to first-time homeowner? You can turn the key in a lock that no landlord has access to, read in a hammock in your own backyard and paint your dining room bright red. Some first-time homeowners get swept up in all the excitement and make mistakes that can jeopardize everything they've worked so hard to earn.
Don't be one of those people: Take a few moments to ponder these seven practical concerns that will help ensure that your first home becomes the place of luxury and financial freedom you expected it to be.
Don't overspend on furniture and remodeling
You've just handed over a large portion of your life savings for a down payment, closing costs and moving expenses. Money is tight for most first-time homeowners. Not only are their savings depleted, but their monthly expenses are often higher as well, thanks to new expenses such as water and trash bills and extra insurance.
Everyone wants to personalize a new home and upgrade what may have been temporary apartment furniture for something nicer, but don't go on a massive spending spree to improve everything all at once. Just as important as getting your first home is staying in it, and as nice as solid maple kitchen cabinets might be, they aren't worth jeopardizing your new status as a homeowner. Give yourself time to adjust to the expenses of homeownership and rebuild your savings; the cabinets will still be waiting for you when you can more comfortably afford them.
Don't ignore important maintenance items
One of the new expenses of homeownership is making repairs. There is no landlord to call if your roof is leaking or your toilet is clogged (on the plus side, there is also no rent-increase notice taped to your door on a random Friday afternoon when you were looking forward to a nice weekend). While you should exercise restraint in purchasing the nonessentials, you shouldn't neglect any problem that puts you in danger or could get worse over time, turning a relatively small problem into a much larger and costlier one.
Hire qualified contractors
Don't try to save money by making improvements and repairs that you aren't qualified to make. Your home is both the place where you live and an investment, and it deserves the same level of care and attention you would give to anything you value highly. There's nothing wrong with painting the walls yourself, but if there's no wiring for an electric opener in your garage, don't cut a hole in the wall and start playing with copper. Hiring professionals to do work you don't know how to do is the best way to keep your home in top condition and avoid injuring — or even killing — yourself.
Get help with your tax return
Even if you hate the thought of spending money on an accountant when you normally do your returns yourself, and even if you're already feeling broke from buying that house, hiring an accountant to make sure you complete your return correctly and maximize your refund is a good idea. Homeownership significantly changes most people's tax situation and the deductions they are eligible to claim. Getting your taxes professionally done for one year can give you a template to use in future years if you want to resume doing your taxes yourself. And remember, tax-preparation expenses are tax deductible, so whatever your marginal tax rate is, think of that as a discount on the cost of the service.
Keep receipts for home improvements
When you sell your home, you can use these costs to increase your home's basis, which can help you to maximize your tax-free earnings on the sale of your home. In 2008, you could have earned up to $250,000 tax free from the sale of your home if it was your primary residence and you had lived there for at least two of five years before you sold it.
Let's say you purchased your home for $150,000 and were able to sell it for $450,000. You've also made $20,000 in home improvements over the years you've lived in the home. If you haven't saved your receipts, your basis in the home, or the amount you originally paid for your investment, is $150,000. You take your $250,000 exemption on the proceeds and are left with $50,000 of taxable income on the sale of your home. However, if you saved all $20,000 of your receipts, your basis would be $170,000 and you would pay taxes on only $30,000. That's a huge savings: In this case, it would be $5,000 if your marginal tax rate is 25%.
Don't confuse a repair with an improvement
Unfortunately, not all home expenses are treated equally for the purpose of determining your home's basis. The Internal Revenue Service considers repairs to be part and parcel of homeownership — something that preserves the home's original value but does not enhance its value. This may not always seem true. For example, if you bought a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but the IRS doesn't care — you did get a discount on the purchase price because of those unmade repairs, after all. Only improvements, such as replacing the roof or adding central air conditioning, will help decrease your future tax bill when you sell your home.
For gray areas (like remodeling your bathroom because you had to bust open the wall to repair some old, failed plumbing), consult IRS Publication 530 and/or your accountant. And on a nontax-related note, don't trick yourself into thinking it's OK to spend money on something because it's a necessary "repair" when in truth it's really a fun improvement. That isn't good for your finances.
Get properly insured
Your mortgage lender requires you not only to purchase homeowners insurance, but also to purchase enough to fully replace the property in the event of a total loss. But that's not the only insurance coverage you need as a homeowner. If you share your home with anyone who relies on your income to help pay the mortgage, whether it's a girlfriend or a child, you'll need life insurance with that person named as a beneficiary so he or she won't lose the house if you die unexpectedly. Similarly, you'll want to have disability insurance to replace your income if you become so disabled that you can't work.
Also, once you own a home, you have more to lose in the event of a lawsuit, so you'll want to make sure you have excellent car-insurance coverage. If you are self-employed as a sole proprietor, you may want to consider forming a corporation for greater legal protection of your assets. You may also want to purchase an umbrella policy that picks up where your other policies leave off. If you are found at fault in a car accident with a judgment of $1 million against you and your car insurance covers only the first $250,000, an umbrella policy can pick up the rest of the slack. These policies are usually issued in the millions.
Monday, January 4, 2010
By Marilyn Lewis of MSN Real Estate
As the highly addictive drug methamphetamine grows in popularity, so does the chance you could end up buying a “meth house” when you go shopping for real estate.
Making or even smoking meth leaves behind a stew of chemicals that saturates walls, ceilings, floors and carpets with meth as well as mercury, lead, iodine, lithium and poisonous solvents. For each pound of drug, meth “cookers” dump, flush or leave behind 5 to 6 pounds of poisonous waste.
Exposure to even small amounts of these poisons can damage humans’ nervous systems, liver and blood production mechanisms. Small children suffer most. Exposure can trigger birth defects and developmental problems in babies in the womb. (Learn about drug-endangered children at the Office of National Drug Control Policy.)
Meth labs are found in houses, commercial buildings, cabins, mobile homes, RVs, caves, abandoned mines and federal and state forests and parks. The stuff is so easy to make and the ingredients are so cheap and common that some users just make their own at home in two-liter pop bottles or a picnic cooler.
If you accidentally buy a meth house, your health isn’t the only thing at stake. You could get stuck with tens of thousands of dollars in costs for testing and hazardous-materials cleanup.
That is what happened to Dawn Turner’s son and his young family when they unwittingly bought a meth house in a rural area in Tennessee in 2004. It wasn’t until 2006, when they decided to sell the house, that they learned from neighbors that the previous owner of their home was in prison for making and using meth there. The cost of testing, decontaminating and re-testing the house: $16,000. The experience devastated the young couple, emotionally and financially, says Turner, who began a Web site, MethLabHomes.com, that’s a repository of news and resources to help keep others from making the same mistake.
Many homeowners she talks with are wiped out financially by these contaminated homes, Turner says.
Sorting fact from fiction
A home contaminated by meth production has few visible signs. Buyers need help identifying the risks, yet bad information abounds. Here are some common myths about meth houses:
Myth No. 1: You can use hair spray or spray starch to find meth residue.
Fact: Hair spray? Not a chance. There is a bit of truth that starch, sprayed on a contaminated surface, will turn purple-red. Starch turns color in the presence of iodine, used in cooking meth. “It’s a pretty common high-school science project,” says Caoimhín P. Connell, an industrial hygienist who’s an expert in detecting methamphetamine with Forensic Applications Consulting Technology in Bailey, Colo. The spray-starch trick caught on after it was featured in an episode of “CSI.” It can work, but it’s not reliable or sensitive, so if you don’t see purple, you can’t conclude that a house is clean.
Myth No. 2: You can tell by the smell.
Fact: An old, out-of-use method of meth manufacture does produce a nasty odor that’s reminiscent of cat urine. Even current methods – at certain stages – produce various odors. But none of these is a reliable tip-off. In fact, most meth-contaminated homes have no odor or visual clues.
Mike Parker, a landlord in Trinidad, Colo., spent two years and $40,000 to test and clean up one of his 21 apartments after police arrested a tenant with meth supplies four years ago. The apartment was sealed for two years while Parker tried to borrow enough money for the job. His insurance policy didn’t cover it. “They literally go in and tear everything out,” Parker says of the cleanup by a hazardous-waste company. “I had to recarpet, put in a new toilet, new appliances, new fixtures. They took out the stove, refrigerator, everything.”
And yet, Parker had been in the apartment the day of the bust and he smelled nothing -- no tell-tale odors whatsoever. Despite all his trouble, he says he feels somewhat lucky: Had all 21 apartments shared a heating system, the entire building would have been affected.
Parker vouches for the fact that meth labs are easy to conceal. Usually they go undiscovered until a landlord finds a mess when tenants depart or a neighbor phones police to report someone’s weird behavior. “We presume that for every meth lab law enforcement discovers, there are 15 that have not been discovered,” Connell says.
Myth No. 3: No problem, they were only smoking it.
Fact: Many people don’t realize that smoking meth just once leaves a home uninhabitable, Connell says. Some newer methods of manufacture create less contamination, but smoking “will result in contamination 100% of the time,” Connell says.
Myth No. 4: You’re safe in high-end neighborhoods.
Fact: Plenty of labs have been discovered in expensive homes in “nice” neighborhoods. “We have processed meth labs in the homes of two different dentists, a public accountant and an international banker who had a legitimate income of seven figures,” Connell says. He recently tested and found meth in a “beautiful,” 4,500-square-foot, million-dollar house in downtown Denver.
In 2009, the Drug Enforcement Administration reported clandestine meth labs in 46 states. Certain areas become hot spots. Lately, Oklahoma, Arkansas and Missouri are a center for labs. One reason: Midwest farmers use tons of anhydrous-ammonia fertilizer on crops. It’s a “precursor” (ingredient) for meth and is stored in big tanks in and around farms. Thieves help themselves and a manufacturing industry grows up around the supply.
No one is suggesting that every home purchase should be treated as a potential meth lab. But there are some tip-offs that tell you to investigate further. Unfortunately, many clues -- squalid living conditions, graffiti, strange visitors coming and going at night – aren’t available to a buyer. However, you can screen for the most obvious red flags:
Foreclosures: Plenty of meth labs get used, trashed and abandoned. They end up in foreclosure and then are recycled onto the market. Scrutinize foreclosure purchases carefully, Connell says.
Houses: A disproportionate number of labs show up in single-family homes compared with apartments and condominiums, Connell says.
Police trouble: A house that has a history of arrests or police visits is more likely to have a meth history. Here are tips to learning a home’s history:
o Chat with neighbors. Knock on doors in the neighborhood. Introduce yourself, say that you’re considering buying the house down the block and that you’re researching its history. Find longtime residents whose memory stretches back awhile. Ask if police have been called to the house or if arrests or busts were made there.
o Call the police. Phone or visit the police department’s community-service office and ask them to check the address of the home you’re considering for arrests, drug busts and other problems.
o Call the health department. Find out if the address you’re considering is listed in connection with any health department reports.
The only way to guarantee the home you’re buying isn’t contaminated is testing by an industrial hygienist specializing in drug-residue detection. “By walking into a property, I can tell you, based on the structure, other properties around it, where the light switches are, which way the wind blows, where to collect the sample that tells if meth is present,” Connell says. Samples are sent to a lab for analysis. A cursory evaluation can cost around $450; exhaustive testing starts at $2,000 or more.
A decent (but not fail-safe) screening can be done with a good test kit. Cost: $9 to $35. A positive reading shows that a place has a problem. But a negative reading doesn’t mean the home is clean. Amateur testers can easily miss “dirty” areas. Increase your chances by using seven or eight kits in a home you’re serious about, wiping many different locations – counters, ceiling, floor and walls in different rooms. Tests can be purchased over the Internet but vary in quality. Connell recommends SKC Methchek (in which he has no financial interest), which uses a method developed by the National Institute for Occupational Safety and Health that lets you see results instantly. Cost: three tests for $109; discounts for volume purchases.
To protect yourself, it also helps to do these things:
Learn your state’s protections.
Some states give buyers more protection than others, both in terms of how much information a seller must disclose about a property and in terms of acceptable standards for cleaning up a drug-contaminated site.
Most states require sellers to disclose certain known problems, such as structural defects. In addition, some states also make sellers disclose that they’re not aware of environmental hazards such as asbestos or lead. A few states go even further. Colorado, for example, now requires sellers to certify in a real-estate contract that a property was never used as a meth lab. A buyer can get a house tested and can back out of a deal if a meth history is revealed. Once a house has been decontaminated to Colorado’s standards, though, sellers no longer need to disclose the history.
Disclosures matter because, in most jurisdictions, if property that you own turns out to be contaminated, you must pay the cost of testing and cleaning it up, whether or not you were aware of the home’s history. Increasingly, communities and states are setting strict standards for cleanup.
When you’re buying property:
Learn what to expect from disclosures. Read: “Disclosure: What sellers need to know.” Ask a good real-estate agent to explain exactly what sellers must disclose in your state. Look up your state’s real-estate laws and learn how to contact regulators at the Association of Real Estate License Law Officials’ Web site.
Accompany the home inspector. Even if you don’t suspect problems, try to be on-site during the pre-purchase inspection of a home you want to buy. You’ll learn much more by watching the inspection and asking questions than you will by simply reading the inspection report. Don’t expect a home inspector to be able to identify meth contamination. However, some inspectors have taken training that lets them point to suspicious signs.
Use your own smarts. Look for unusual problems such as yellow staining on carpets and walls, and corroded plumbing and electrical wiring. The Nevada Attorney General’s Web site lists more ways to recognize a meth house here.
Covered Windows: Meth makers often blacken or cover windows to prevent outsiders from seeing in.
Strange Ventilation: Meth makers often employ unusual ventilation practices to rid themselves of toxic fumes produced by the meth-making process. They may open windows on cold days or at other seemingly inappropriate times, and they may set up fans, furnace blowers, and other unusual ventilation systems.
Elaborate Security: Meth makers often set up elaborate security measures, including, for example, "Keep Out" signs, guard dogs, video cameras, or baby monitors placed outside to warn of persons approaching the premises.
Excessive or Unusual Trash: Meth makers produce large quantities of unusual waste that may contain, for example:
• packaging from cold tablets
• lithium batteries that have been torn apart
• used coffee filters with colored stains or powdery residue.
• plastic soda bottles with holes near the top, often with tubes coming out of the holes
Presence of Meth Ingredients: The best indicators of meth production are the presence of the ingredients used to make the drug. Homes containing a meth lab may have either (1) a large amount of a single meth ingredient, such as Sudafed, or, alternatively (2) a significant number of ingredients and supplies used to make meth. Here are some typical meth-making ingredients and supplies:
• cold medications containing ephedrine or pseudoephedrine
• lithium batteries
• ether and/or camping fuels
• anhydrous ammonia
• hydrogen peroxide
• Red Devil lye
• sulfuric, muriatic, and/or hydrochloric acid
• coffee filters
• funnels and turkey basters
• improvised glassware
While many of these ingredients and equipment are common, the amounts and the form of the ingredients needed to manufacture meth are different than what the average person would possess. For example, multiple boxes of cold medicine, or cold medication removed from blister packs, may indicate the presence of a meth lab. The same is true for coffee filters covered with strange stains or powders.
Presence of Equipment or Apparatus Used to Meth: In addition, there may be strange types of equipment or apparatus in the house used to manufacture meth. For example, soft drink bottles with hoses attached or cans of camping fuel with holes punched through the sides or bottom indicate the presence of a meth lab.
BEHAVIOR OF OCCUPANTS:
Paranoid Behavior: Meth makers tend to act in a manner that is extremely paranoid and secretive. For example, they may monitor passing cars, show great suspicion toward strangers, and – as noted above – construct elaborate security systems around their homes.
Staying Inside: Residents of houses containing meth labs may remain inside their homes for extended periods of time. Many meth addicts and meth makers are not only paranoid and secretive, but also unemployed.
Smoking Outside: By the same token, residents of houses and other structures containing meth labs often go outside to smoke. They do this to avoid igniting a fire or explosion when matches, lighters, or cigarettes come into contact with the highly combustible chemicals and fumes found in a meth lab.
Frequent Visitors: Although residents of a house or other structure containing a meth lab may stay in or near their homes, they often receive a large number of visitors, especially at night. These visitors may be bringing supplies, taking away meth, using meth, hanging out, or any combination of these activities.
Mobile Garage: To avoid detection of their illegal activities, meth makers may burn their trash, place it in the trash collection area of another house or building, or cart it away and dump it elsewhere.
WHAT TO DO IF YOU COME ACROSS A METH HOUSE:
Stay Calm - Keep your distance and never take matters into your own hands.
Protect Yourself – Leave immediately or do not approach the structure or confront its occupants. Both meth labs and meth users are extremely dangerous and unpredictable.
Protect Others – Alert any innocent bystanders who may be in imminent danger, such as children playing in the front yard of a home you believe may contain a meth lab.
Alert Law Enforcement – Alert local law enforcement authorities without delay.