Frequently Asked Questions:

Q: How do you choose between condos and single-family homes?
Q: Are condominiums risky to buy?
Q: What do you think of a vacation home as an investment?
Q: What do you think of get-rich-quick real estate schemes?
Q: Are condos a good investment?
Q: How do I project rents on a rental?
Q: Are one-bedroom condominiums a good investment?
Q: How do I figure out the homeowners association?
Q: Can you negotiate the price on new homes?
Q: Should I buy a vacation home?
Q: What do you think of a vacation home as an investment?
Q: Do builders give financing?
Q: Should I hire a home inspector for a new home?
Q: What are some new-home cautions?
Q: What about new versus previously owned?
Q: What are considerations to buying a new home?
Q: What is the return on new versus previously owned homes?

Q: How do you choose between condos and single-family homes?
A: Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single-family homes in the last five years. And in some markets, condos appreciated even more, according to some experts. While single-family homes have been the preferred investment by home buyers, changing demographics are helping make condos more popular, especially among single home buyers, empty nesters and first-time buyers in high-priced markets. Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation.

Q: Are condominiums risky to buy?
A: While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong. As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer). The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.

Q: What do you think of a vacation home as an investment?
A: You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible. Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year. You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.

Q: What do you think of get-rich-quick real estate schemes?
A: Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate. Some are reputable while others depend on your financial circumstances to work. A handful are simply scams. Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly. Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.

Q: Are condos a good investment?
A: Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the last few years than when they first came on the scene in the late 1970s and early 1980s, experts say. While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past. Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.

Q: How do I project rents on a rental?
A: If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market. Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.

Q: Are one-bedroom condominiums a good investment?
A: One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos.

Q: How do I figure out the homeowners association?
A: Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life. When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues. Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association?s covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board. Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on. Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you. Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing. Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.

Q: Can you negotiate the price on new homes?
A: It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. Experts say builders more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.

Q: Should I buy a vacation home?
A: Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it less than 14 days a year. Resources:* "Real Estate Investing From A to Z," William Pivar, Probus Publishing, Chicago; 1993.* "The Ultimate Language of Real Estate,'' John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: What do you think of a vacation home as an investment?
A: You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible. Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year. You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.

Q: Do builders give financing?
A: Builders often include financing programs to help move more buyers into a project early on. If it's a buyer's market in your area, you can be sure that developers will offer incentives such as low-down-payment financing.

Q: Should I hire a home inspector for a new home?
A: Most experts recommend having a home inspected, new or old. For new home, ask the builder to provide copies of any inspection reports on the property, architectural plans, surveys and pertinent construction documents for your inspector to review. Your inspector should either be a professional home inspector, an engineer, an architect or a contractor. If you hire a professional inspector, look for one who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are a prerequisite. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.

Q: What are some new-home cautions?
A: When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example. Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.

Q: What about new versus previously owned?
A: Although new homes typically have a higher sales price than comparable existing homes, buyers are willing to spend more upfront with an understanding that part of what they are paying for is assured low maintenance costs. A builder's warranty, along with brand-new roof, appliances, furnace and other operating systems that make major repairs unnecessary, work together to counteract possible slower appreciation initially. Data from the U.S. Census Bureau's 1991 American Housing Survey suggest that operating costs per house are lowest for brand-new homes, slightly higher for relatively new existing homes but lower on average for older existing homes. Measured per square foot of living space, however, operating costs are consistently higher for progressively older existing homes. Utility costs are the largest component of operating costs. Energy consumption per square foot depends on size of the home, insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs.

Q: What are considerations to buying a new home?
A: Builders may have a target market in mind for their new-home projects. Some may tout communities as glamorous to upscale urban professionals seeking amenities such as a golf course, hot tubs and tennis courts. Yet a playground and swimming pool might be central to a project geared toward families while the next one offers seniors a walking trail and an easy-to-care-for yard. Do not be tempted to move into a "glamorous" community where you might be able to afford the house but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner possibly could do to make their house deviate from the preferred look. Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there.

Q: What is the return on new versus previously owned homes?
A: Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy. One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased 3 percent between 1994 and 1995, compared to 0.8 percent for new homes in the same period.