Free Financial Advice

Financial Questions from Our Visitors - Page 10

The examples below are from some of the visitors to Free Financial Advice. The questions below mostly represent word for word the questions asked by the visitors (sometimes including bad punctuation and spelling), but occasionally the questions will be edited on this page. And even though these people have shared their personal finances with Free Financial Advice, we have stripped out any names or other personal information to protect their identity. If you see one of your questions on this page and it makes you uncomfortable, please contact us and we will remove it immediately. Also, please note that any advice or suggestions made from this site are only suggestions and should not be deemed as professional, legal advice. Please see our disclaimer for more information. I apologize for continually mentioning our disclaimer, but this is a very litigious world that we live in.

Question:

I have just received a totally unexpected bequest of $100,000. Sixty thousand dollars of the bequest will be in cash; $40,000 is currently in 1,200 shares of stock of a large banking corporation. I have been given the option to take the stock or convert the it to cash.

I am sole caretaker of my handicapped mother, and have been for 14 years. I have no taxable income and no longer have any significant savings or investments. I am fearful of speculating with this windfall.

Should I accept the stock or convert it to cash? And what are the tax considerations? (FYI-the stock has been losing slightly over the past year although it is judged to be relatively stable and low risk.)

Response:

To answer your question, having 40% of your portfolio in any single stock is too much. I would recommend selling all or at least most of the stock and investing in several different types of non-risky mutual funds. If you don't need the money to grow to fund your retirement, you may be more comfortable putting some of it into money market accounts that will basically keep up with inflation (since it sounds like you are very nervous about investing).

Regarding the tax consequences, I believe you'll have to pay taxes on the full $100,000 this year (you may get a tax break because of the gift tax law), even though some of it was stock. You'll probably want to verify this with a tax professional. Also, to reduce your tax liabilities and maximize your investments, you should take advantage of any retirement accounts you can contribute to, including an IRA or a Roth IRA.

Question:

My husband and I would like some good advice about a money matter: we would like to build a house on a lot that we are now purchasing. The mortgage interest rate is great right now,(5.75% 30 yr) so we would like to take advantage of it. We currently own a home and have 27,000 left on loan at 7.5% for 15 years--we have approx. 5 years left on loan. A banker suggests we refinance our house at 5.75% for 70,000 for 30 years - this lowers our payment 100.00 a month, we would pay off the current 27,000 and have 40,000 to put toward a new house. We would sell or rent our current home when we build a new house. Is that the best thing to do? Should we keep it like it is and in 4 years our house would be paid for? What benefit is there in refinancing?

Response:

Refinancing could indeed be a good idea for you. And remember, you don't need to refinance the full $70k. You could also refinance just the $27k into a 5 year loan which would still save you money and you would still pay off the house in the same time. You have unlimited options, but here are some of the items you should weigh before making your decision:

- If you refinance the full $70k and then rent the house out, will you be able to afford both the payment on your new house and the payment on the refinanced loan, as well as keep a reserve in case of a lawsuit or catastrophe?

- Do you want to manage your current home as a rental property? If not, you could still refinance now to get the $70k out and then pay off the refinance loan when you sell the house.

- Whether or not you refinance $27k or the full $70k, you will still save 1.75% on the current balance of $27k. This will amount to about $950 over the remainder of the current loan. Make sure you don't pay refinance fees or points that are higher than this amount.

- If you refinanced the $27k in a five year adjustable rate mortgage, you could probably get your rate down to 4%. This would actually save you closer to 3.5%, or about $1900 over the life of the loan (4-5 years).

- If you don't have the money for a down payment on your new house, then refinancing (and using the $40k from the refinance as a downpayment) could allow you to avoid PMI insurance on your new house, or to be able to get a lower interest rate on your loan.

Question:

I know so little about investing! I did get a financial advisor, but am concerned about the 5% commission. Have heard pro and con about fee based only vs. commissions. Any advice??

Response:

Regarding your advisor, be leery of the 5% commissions. Don't let him or her talk you into making extra trades to add to their pocketbook. Also, watch everything they do closely and try to understand it yourself. If it doesn't make sense to you then insist that it not be done. Also, keep doing your research on investing and money management. If you feel comfortable with investing after several months, feel free to transfer your account to a low cost brokerage like etrade.com or schwab.com and save yourself money.

Question:

I hope this is the correct place to ask a question? If so, you might try adding the statement, Ask a Question! in the sidebar so that people can readily find it. Also, I'd like to see the questions organized under keywords or subjects on a searchable database.

Now, background for my question is as follows: I receive Social Security Disability each month in the amount of $857.70 with no other income. I am covered by Medicare and a Medicaid spenddown program costing $210.90 monthly. I recently moved to subsidized housing where I pay $206 per month for rent and utilities. I am wheelchair bound and need numerous, costly prescriptions each month.

I own a dilapidated, 100 yr old house in a small, rural town. Each month, it costs me $200 plus for property insurance, propane & electric (for heat for pipes) & security lights. Taxes run just over $300 annually. I think the house is beyond repair and should be razed. It sits on approx. 5 acres of city land with 850 ft of frontage on a popular hiking and biking trail. It has a standing barn and summer kitchen. I thought the property was worth about $25-$30K based on an appraisal of the house some 6-8 years ago. But, I checked an internet site who contacted a realtor from the area for a guestimate based on the above facts and was told a better figure would be $50-$70K without including the house and allowing only $5,000 for the barn.

My question is this. Given the income and savings limits imposed by Social Security, Medicaid & my housing program, what would be the best way to sell the property and then handle the resulting money? Should I sell it outright or carry the loan myself and make the monthly payments less than the monthly allowable income? Would this income count as earned income?

If you can't give me any suggestions, can you tell me what is the best expert to go to for help with this...a lawyer, realtor or financial advisor? I don't have any extra money as you can see my my expenses and income. In fact, I only make it by choosing between food and medicine. I need to get this property off my back.

I would be grateful for whatever ideas you have. Thank you.

Response:

Thanks for your feedback! The reason I don't place an "Ask a Question" link on the site is because I don't have enough time to answer all of the questions I receive. By making it more difficult to contact me, I can keep up with the questions more readily. Also, regarding your comment about having a searchable database, that sounds like a good idea but I don't really know how to set it up.

Anyway, I've looked at your question and would love to offer some useful advice. However, I really don't know enough about the Social Security, Medicaid and other housing limits to give you quality advice. Here's the free advice I can give you:

The first thing I would do is talk to someone at your local social security office. This advice should be free and they may be able to help you find a way to take advantage of the real estate without losing any of your benefits.

The second thing I would try would be to call a tax professional and ask whether the income from selling the house would be earned income or not. And, if so, if there is any workaround to avoid the penalties. If you don't have anyone to call, you can use the following link to talk to somebody (it costs $20).

http://www.hrblock.com/taxes/doing_my_taxes/products/advisor.html

One other suggestion that I can think of would be to convert your property into an income producing property and then to recognize just as much income as you can (without losing benefits). It gets a little complicated, but by using various methods of depreciation, you somewhat control how much money you report as taxable. A tax professional and real estate agent could help, but here are some techniques that you may be able to use:

- Sell your property and use a tax-free 1031 exchange to roll the money into another property that would provide you with income (for example, a single family home that you can rent out for monthly income). You can always find expenses that you can write off against the income so that your reported income could remain small.

- You could sell the property using seller financing (like you mentioned). This won't give you many write offs to reduce your income, but you also wouldn't have to deal with any tenants.

- You could take out a loan against the property and build a new house or townhouse on the land, which you could rent out for monthly income.

- You could hire someone else to renovate the house (if it is salvageable). Because it is 100 years old, check with your city and state to see if you can classify it as an historic building. If you can, you can probably get free money or interest free loans to pay for some of the renovations.

- Using any of the methods above, you could also find ways to invest the money you receive so that your income doesn't go beyond your benefit limits. These may include contributing to IRAs or even transferring the entire property into a retirement account (can sometimes be done with a SEP IRA).

- A good tax advisor could give you lots more ideas, and a real estate agent could help you execute the real estate transactions (if you decide to sell).

I know this isn't a comprehensive solution, but hopefully it will give you some ideas to proceed with. Best of luck.

Question:

I am a retired bank CEO (35 yrs), car dealer (3 yrs), and stockbroker (1 yr). I have been thinking of establishing a website on how to deal with your banker for small businesses and consumers. Income is not a must, but a few fees would be nice. I would appreciate your candid advice.

Response:

Not sure what your question is, but I'm assuming that you want to know if creating a website is "worth it", both financially and as a hobby. Here's what I have to say on that:

First of all, it takes a lot of time and energy to create a website. You have to learn how to design, host and market your site. And of course you have to think of and write all of the content yourself. Furthermore, if the content you write is not unique, it is very hard to get your site listed in the major search engines and directories (unless you pay for the traffic). There is a lot of trial and error and because search engines update so slowly, it takes months and months before you get much traffic. And even then, there are always setbacks that will be sure to frustrate you. In order to make money, you can either add affiliate links to useful sites whereby you can get paid for the business referrals, or you can charge a fee for your services. The fee can easily be set up for free by opening a PayPal account. Also, the more people with similar websites, the more difficult it is to get people to visit yours. You should surf the directory of Yahoo and ODP (dmoz.org) to look at similar sites before you start. Basically, it is a lot of work and often frustrating.

However, with that said, it is also rewarding because you learn a lot, make a little money (hopefully enough to keep you interested enough to write more content) and get a chance to help other people. It makes a good hobby and you can do it at your own pace. It is also very challenging because you can never reach perfection.

Hope this is the answer you were looking for.