Sell unrented property you can’t make payments on

Dear Dave: I have a rental property, but a few months ago I got laid off and I’m behind on the payments. I found a job recently, but it doesn’t provide enough income to cover the mortgage on this property. A friend has offered to buy it for what’s owed, but I’m not sure that’s the best thing. I owe $80,000 and its worth around $160,000. — Tony

Dear Tony: You’re on the right track with selling the property. I wouldn’t jump at your friend’s offer, but I would take a drastic cut in value and sell it.

Let’s face it, Tony. You’re broke and you’re trying to play real estate investor. That’s not a good plan. Cut the $160,000 price tag down to about $110,000 so you can move it fast and see some equity in the deal, but sell this thing today!

That way you’ll have some cash in your hands, and you can start your financial life fresh again. — Dave

Flipping houses

Dear Dave: I live in New York, and even though I follow your advice and live on a budget it’s really hard to save up for a down payment on a house because property is so expensive here. My family in South Carolina advised me to buy cheaper property down there, fix it up and flip it to get the money I need. Does this sound like a good plan to you? — Adrian

Dear Adrian: I wouldn’t do it. Fixing and flipping properties is a very hands-on business, and trying to do it from another state would be a nightmare!

When you take on this kind of work, you need to oversee what’s happening every step of the way. You’re also working out the details, and keeping an eye on the crew to make sure they’re doing things right. Besides, you can’t just walk up to a house, buy it and expect to get a great deal.

Professionals who flip houses for a living often look at 100 or more properties to buy just one. It’s not an easy way to make money, and it’s definitely not something to consider doing from a distance.

Just keep on working the budget and save as much as you can, Adrian. You might even consider getting a part-time job for a while to bring in some extra cash. But waiting a while and saving up is a lot smarter plan than fixing and flipping houses on the other end of the country! — Dave

Extended warranties

Dear Dave: I bought an extended warranty online for my 2000 pickup. I compared a lot of warranties, and I found one company that promised coverage similar to the original factory warranty. I had to have my air conditioning repaired and the shop charged me $1,550. This warranty company really stepped up and covered me. Now, I’ve got a friend who has an older car and is looking at an extended warranty. I recommended this company to him, but would like to give him some key things to shop out on these warranties. What do you recommend? — Jerry

Dear Jerry: My recommendation is that he not buy one, and I wish you hadn’t, either. Extended warranties are not a good deal!

Extended warranties are insurance, and insurance is made up of four components: commissions, overhead expenses, the statistical probability of the event occurring and profit. When you buy an extended warranty, you’re covering commissions, overhead and profit. Only about 13 percent of what you’re paying for an extended warranty goes toward actual repair costs.

If you set the amount of most extended warranties aside, you could cover the average repair costs on your vehicle yourself. Extended warranties are extremely profitable for those selling them and a terrible deal for those buying them.

Fifteen hundred dollars for an air conditioning repair on a 2000 pickup is a rip off. Self-insure with an emergency fund, and choose your repair people better! — Dave

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