Renting home may not cover monthly payments, expensesHOUSE CALLS

Q: If I buy a house to rent out, will the rent cover the mortgage of the house? -- L.M.

A: What a good question. It's exactly what every would-be investor should ask before buying anything.

Well, maybe not exactly.

What you really need to ask is: Will the rent receipts cover mortgage payment, lost income from cash you invested, property taxes, property insurance, say a 5 percent allowance for maintenance and repairs and another 5 percent for vacancies or uncollected rent? Add in something for the cost of your own lawyer and tax professional, because as an investor, you should use both right from the beginning.

After you've figured out how much all that is likely to add up to, you're ready to subtract it from the rent you can expect to collect. Start thinking like a prospective tenant. Find out what comparable places can be rented for in that neighborhood, which is what you might be able to charge. Compare that with your estimated expenses, to see how much -- if anything -- might be left over for what is known as cash flow, money in your pocket.

Please, no e-mails from accountants pointing out that I'm ignoring stuff like marginal tax rate, internal rate of return, equity and the like. We're trying to keep it simple here. And anyhow, L.M. should really start by going to the library or bookstore and studying a basic book like "Landlording" or "Real Estate Investment for Dummies."

Seller can negotiate

for early payoff

Q: I hold a mortgage for a piece of property. How can I get it paid off by the buyer? The mortgage is scheduled to be paid off by May 2016. -- L.

A: It isn't likely you can call in the whole amount of the debt ("accelerate" the mortgage) unless the borrower has violated some of its terms.

If you want money right away, you can sell "the paper" to one of the outfits that pay cash for the right to collect the rest of the money. You must realize, though, that they won't offer you the full amount of the debt. They usually need a substantial discount to make the deal worthwhile, because they'll be waiting 10 years to receive all the money.

One other route might be to offer your borrower a discount -- in this case, a more modest one -- for immediate payoff. You might make it enough, depending on the interest rates involved, so that it's worth your borrower's while to obtain another loan elsewhere and pay yours off.

Agent's parents

want to buy

Q: We listed our house for six months. We are five months into the contract, and suddenly, the agent's parents want to buy. We believe they have been waiting for the price to come down. They submitted an offer for less than our asking price with several conditions, one of which is that we give the buyers credit for "$7,500 for buyer's recurring and non-recurring costs" and also a very low deposit.

We are of the opinion that our agent is no longer working for us, but for her parents. We think she is scrambling to make this sale because she has invested probably $2,000 in newspaper ads and flier printing. They also want "back-up offers only" for 60 days after acceptance, (this would be a contingency sale). What do you think of all this? -- via e-mail

A: You've had five months to find out if the buying public is ready to pay what you've been asking, and nobody else is, even after extensive advertising and fliers. So I don't think you need be suspicious about these particular buyers holding off till your price came down.

The request for what are known as "seller concessions" -- that $7,500 -- is not out of line either, as long as the situation is made clear to the buyers' lending institution, with no fake contracts involved. And the agent's disclosing her relationship to the buyers is proper.

But you are right in thinking that there's probably dual agency, divided loyalty, here. You might want to talk with the managing broker in that office about the problem. By all means, get your own attorney involved.

What does concern me here is that contingent. Before tying the house up in a contract, I'd want some reassurance. If the buyers must first sell their current house, will they price it at a no-nonsense level for prompt action? I'd want the right to call them on it any time if another buyer made an offer I wanted to accept. "Agree to buy even if your house doesn't sell, or else drop out." I'd want that escape clause in effect immediately, not after 60 days.

"Your" agent may not look for other buyers, but if the house is multiple-listed and the price is now attractive, other brokers may.

Edith Lank will personally respond to any questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.