Q: I’m studying for my real estate license, and last week, we discussed mortgages. I still can’t get “mortgagor” and “mortgagee” straight in my mind. I told our professor that I’d email you to see whether you could help. By the way, we sometimes talk about your column in class.
Wish me luck on the exam. — L. C.
A: Perhaps the confusion comes because we all talk about “getting a mortgage” to buy property. What we really need is money. What we get is a loan. We don’t get a mortgage at all.
On the contrary, we sign a mortgage (in some states, a trust deed) that gives the bank a claim against the property, along with a bond or note, which is a personal promise to repay.
We hand the bank the mortgage and the note; it takes it and in return gives us a check.
Words that end in “er” and “or” apply to the one doing the action — the buyer, the seller and, as we are signing that document, the mortgagor. We are mortgaging the property.
A word ending in “ee” applies to the one who receives the action. The lender accepts our signed mortgage, receives it, holds it and is, therefore, the mortgagee.
If that doesn’t help, how about this? The word “borrower” has two o’s in it, and so does “mortgagor.” The word “lender” has two e’s, and so does “mortgagee.”
Good luck with the exam.
Q: I am a new owner of a duplex rental property, and I was hoping you could give advice on how to capitalize on this investment when I submit my taxes. Also, what implications can I expect when I sell the property? — Anonymous
A: Congratulations on your new career as a real estate investor.
One of your first steps should be to line up the professionals you will rely on from here on out. I assume you have a lawyer on tap — one who does a certain amount of work with landlords.
In the same fashion, you need an accountant and a certified public accountant for ongoing advice and tax returns.
As a landlord, you will benefit every year by deducting from rental income the artificial expense known as depreciation.
It’s based on the theory that real estate sickens and dies over time, so you lose part of its value every year. Of course, that’s not what usually happens, and you probably bought the property expecting quite the opposite, but the IRS lets you do it.
When you sell in the future, you must give back — recapture — all the depreciation you deducted (or could have deducted) over the years.
Investors enjoy this system because subtracting the depreciation saves income tax in today’s dollars. You have the use of that money and whatever it earns until you sell, and someday you’ll give it back with cheaper dollars.
Meanwhile, some of the repairs and maintenance you perform as a landlord will be immediately deductible as one-time expenses. Other items must be depreciated over varying periods of years.
Yes, it’s complex. Yes, you need your own accountant right from the start.
House Won’t Sell
Q: Love your column. I never thought I would be asking a question, though.
Our parents passed away and left their house for us to sell. It’s been on the market for one year now, and we haven’t had any offers. We have been through two real estate agents.
The problem is when people come up to the driveway, all they see is an electrical field and transmissions. It’s about 20 yards from the house. They do not even want to look at the house.
My parents built this house before all that was built there. They loved the privacy, and they just didn’t want to sell. Now we’re running out of money to keep it going. Any suggestions? — J A.
A: Yes, and it’s not what you want to hear. As a matter of fact, I’ll bet you’ve heard it already. Those two unsuccessful brokers probably advised the same thing.
Bite the bullet.
Drop the price.
You probably did lower your asking price already, but evidently not enough. You have to find a dollar figure with which the buying public agrees.
It’s too bad about the electric lines, but anything will sell if the price is right. If you offered the property for $2, someone would buy it immediately. Somewhere between $2 and your current asking price is a figure that will sell the place.
You’ll have to do this eventually, and the sooner you do it, the sooner you’ll stop the drain on your own money.
Contact Edith Lank at www.askedith.com, at email@example.com or at 240 Hemingway Drive, Rochester NY 14620.