Q.   I am 55, married (combined income $160,000) with grown children and currently live in a small town on the Gulf Coast. I have been renting an older house for the last 2 years with the rent being $750 a month. There is also a small apartment on the back of the property that is rented for $300 per month.

I can buy the property (house and apartment) for $175,000 to $200,000). It's not in bad shape, but needs a lot of work to be in tip-top condition. We will probably only work for about two or three more years before we retire on an income of about $100,000. We may not live here any longer than that.

From a tax point of view does it make sense to purchase the property? My wife things we should buy it and sink another small fortune into renovation. It's on the water with a great view of the sun coming up over Matagorda Bay.

---P.S., by e-mail.


A. I was in that area not long ago, learning about Falcons from the Texas Nature Conservancy.   It's a beautiful area. If you were going to retire there I'd suggest that you buy it. As it is, however, the deck is loaded against you.

Let me explain why. Right now you live there for $750 a month, no hassle, no investment. That's hard to beat.

If you buy the house your interest expenses on a $175,000 mortgage at 5.5 percent would be about $800 a month. Taxes and insurance would add another $425 a month, perhaps more. Subtract the $300 in rent and your net cost goes down to $925 a month before tax savings. Your tax deductions would be around $800 a month. Unfortunately, that's only about $150 a month more than the standard deduction for a joint return. So your tax savings would only be about $45 a month.  

That's all back-of-the-envelope calculation, but instead of renting at $750 you'd have out of pocket costs, after tax savings, of $880 a month --- plus the cost of repairs and improvements.   When you go to sell the house, you'll face 6 percent or more in selling costs.

If the sale were ten years away those costs would not be a concern. But a 6 percent cost only two years away means you'd be counting on major price appreciation to make owning a better deal than renting.

        Q. I have a dilemma regarding my 1998 Grand Marquis as to selling or trading for a new vehicle. I have tried selling my car since September 2002 and have lowered the price to less than bank loan value and less than wholesale, but have not had a firm offer to date. In late December I tried trading for a new vehicle and was totally shocked at how little they would allow for my clean vehicle. Is the used car market so badly depressed that my chance of selling the car is poor? Should I bit the bullet and trade the car now, or drive the car for another year and hope the used market will improve?

---D.H., Helotes, TX


A. Used car prices have been weakened by zero interest car loans being offered by manufacturers as incentives to buy new cars. You can understand why by considering what a used car purchase looks like to a buyer.

First, lenders are less likely to lend for 5 years with a used car than with a new car. If the term of the loan is shortened to 4 years, the monthly payment will be much higher.   Second, the interest rate will also be higher, further raising the monthly payment. A 7 percent car loan for 4 years would cost $23.95 per thousand borrowed.

  Now compare that to a zero interest loan on a new car, $16.67 per thousand per month for five years. On that basis, a $20,000 new car will cost $333.40 a month. The same monthly payment would only buy a $13,900 used car. The consequence has been major depreciation for recent model used cars.

Basically, zero percent financing for new cars amounts to a forced devaluation of used cars. My suggestion: drive it into the ground.