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Jewish World Review May 12, 2000 /7 Iyar, 5760

Bruce Williams

Bruce Williams
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Consumer Reports


Borrow from Mom and Dad? -- DEAR BRUCE: I am 25 and very ambitious, but I don't have a great deal of money. I have the chance to purchase a prosperous business with a lot of potential. The owners feel burned out, and they are willing to carry about 75 percent of the cost, including inventory, with a balloon note at the end of 10 years.

I have approached several lenders in my area, but they say they simply cannot approve a loan for the down payment. My parents are quite well-to-do and could easily afford to loan me the money or co-sign for me. I am sure they would be willing to do so, but I am very reluctant to admit that I need help from them. I'd like to do this myself. Can you tell me what you would do? -- R.S., Irvine, Calif.

DEAR R.S.: There was a time when I might have said you have to learn to stand on your own hind legs, but times have changed and so must our attitude toward these things. Lenders are difficult to deal with without collateral -- and understandably so, since they have a responsibility to their stockholders and depositors.

I see no problem with using your parents' credit line or their money -- as long as you keep in mind that this is a debt of honor that must be retired. In fact, it may be less expensive for them to use their own resources if they are in a position to do so; or they may put their signature on a note guaranteeing you.

DEAR BRUCE: You have spoken on many occasions of the prudence of a young person maxing out his 401(k) or other retirement vehicle. I'm 28 years old and I have taken your advice thus far, but the 401(k) my company offers has not performed nearly as well as the market over the last couple of years.

I now have the right to put more money into the 401(k) on a nonmatching basis, but I wonder if there is something better that I might be doing -- maybe going directly into mutual funds? -- C.C., Lexington, Ky.

DEAR C.C.: It seems to me that there is another option that you haven't explored, and that is to take the dollars you might have put into the 401(k) on a nonmatching basis, pay the taxes, and then put the money into a Roth IRA, where you can pick the investment vehicles through a third party. The advantage of the Roth is clear: While you do give up some in the way of taxes today, all of the money earned inside the Roth is totally tax-free, with the additional bonus of your being able to call the shots.

DEAR BRUCE: My daughter and her fiance are currently considering buying a home. They are living together but probably will not be married for at least another year. I am happy to see my daughter thinking about home ownership and all the responsibilities that go with it. However, I have a nagging feeling that I am not doing the best thing by encouraging this. I would be grateful if you could tell me whether I'm on the right track. My husband says I should butt out. -- D.H., Los Angeles

DEAR D.H.: If your daughter and her fiance have not asked for your opinion, your husband's advice is probably on point. If they have asked, however, I would feel obliged to say that I don't see how it is wise for an unmarried couple to buy property together. An engagement can be dissolved in a heartbeat, but the financial responsibility does not go away. There are no divorce courts to set parameters on who is responsible for what in the case of a dissolved engagement. If one of the partners decides to disappear, it can take a considerable period to unravel the relationship -- during which time one partner or the other may be stuck with all the payments to protect the investment they have made.

In short, if they are old enough and mature enough to buy a house together, they are old enough to enter into a legal contract of marriage.

Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).


05/11/00: Your heirs, your choice
05/09/00: Mutual-fund investigations
05/05/00: Credit cards vs. debit cards
05/04/00: Lawyer are good for something
05/03/00: The binding nature of contracts
05/02/00: You know you are in trouble when ...
05/01/00: Can primary residence be rented out?
04/28/00: A full refund after five years?
04/25/00: Get a homeowner's title policy!
04/24/00: Beware of errors in your favor
04/18/00: $10,000 limit on gifts
04/17/00: Invest or repay student loans?
04/13/00: Beware of Internet auctions
04/11/00: Six percent is a pittance
04/10/00: Married couples should share windfall
04/07/00: How not to blow an inheritance
04/06/00: Get genetic screening for Tay-Sachs
04/05/00: Beating the look-back period
04/04/00: Providing for retirement
04/03/00: Readers disagree on time shares
03/30/00: The road back to good credit
03/29/00: Pre-tax dollars in IRA taxed later
03/27/00: Gambling on business ventures
03/22/00: Old cars as hobby, not investment
03/20/00: Tax on foreign gifts?
03/16/00: How to buy government bonds
03/13/00: Buying treasury instruments
03/09/00: Subcontractors must pay S.S.
03/08/00: Real-estate lawyers are essential
03/07/00: Don't expect compensation for ideas
03/06/00: Too rich for a Roth IRA?
03/01/00: Is time-sharing a scam?
02/29/00: Paying for nursing-home care
02/28/00: Rely on a real-estate lawyer
02/23/00: Keeping child's money safe from divorce
02/16/00: Just how important is a 401(k)?
02/14/00: Shaky partnership buying house
02/11/00: Protection by residential zoning
02/09/00: Benefiting from a reverse mortgage
02/07/00: Ensure your insurability
02/04/00: Absurd community zoning laws
02/02/00: Money or securities?
02/01/00: Can we KO a custodian?
01/31/00: Why sell a home you love?
01/26/00: Everyone needs a will
01/25/00: Will splitting stocks affect rollover?
01/24/00: Should early retirees contribute to SEP?
01/21/00: Strategies for paying off debt
01/20/00: Is 15-percent growth achievable?
01/19/00: Selling a second home
01/18/00: Running from a time-share
01/14/00: Don't be a spendthrift!
01/13/00: Who gets the house?
01/11/00: It all depends on size of estate
01/06/00: Check references before hiring an advisor
01/04/00: Savings bonds a bad investment
12/31/99: Out of state ain't that great
12/29/99: Warranty rip-offs
12/27/99: Checking up on investment handlers
12/23/99: Options good only when company's strong
12/20/99: Capital gains tax sometimes best
12/17/99: Don't give up your nest egg
12/15/99: Small-claims court no panacea
12/13/99: Termite company not liable for termites?
12/10/99: Services provided must be paid for
12/06/99: How do we minimize house-sale gain?
12/06/99: Maximize your tax shelter!
12/02/99: My neighbor won't maintain even a modicum of civility
12/01/99: Long-distance rentals a bad idea
11/29/99: Mortgage strategy A-OK
11/18/99: Students can work and learn
11/16/99: Value is what will sell
11/11/99: Y2K: No big deal for real estate
11/08/99: Real life is tough luck
11/03/99: The right time to cash a savings bond
11/01/99: Slow road for savings accounts
10/29/99: What do you want from insurance?
10/27/99: You have a right to see your tax forms!
10/25/99: Why own a house at 65?
10/22/99: Online fine, but CDs?
10/20/99: Love, honor -- and separate credit
10/18/99: Find the value of your stocks
10/15/99: Property lien prevents trade
10/13/99: Clear up debt, only then tie the knot
10/11/99: If it ain't broke...
10/04/99: Should I stick with the company IRA?
10/04/99: Get a financial education!
10/01/99: Insurance: Not much one person can do
09/30/99: Lost tickets are lost cash
09/29/99: Trusting only one financial planner
09/27/99: Adult children should help out
09/24/99: Tips for first-time home buyers
09/21/99: Use the rule of 72s!
09/17/99: Legal strategy can be a pain
09/15/99: Teen drivers drive up insurance
09/13/99: Always use an attorney!
09/10/99: Whose taxes are they, anyway?
09/08/99: How do I roll over my 401(k)?
09/03/99: How can I work out my IRS payments?
09/01/99: When your company can't pay you
08/30/99: Beware of shady viatical investments
08/26/99: Landlords vary on security deposits
08/25/99: Educational IRAs must be spent on education
08/23/99: Finding out the value of old stocks
08/20/99: How to get an FHA refund
08/19/99: 100 percent financing is a scam
08/16/99: Will I have to pay a capital gains tax?
08/16/99: Thinking about PMI
08/13/99: Short-term mutual funds a-OK
08/11/99: It's your job to shop around
08/10/99: Sometimes, roots need to be uprooted
08/09/99: 'Pre-approved' doesn't mean a thing
08/06/99: Only you can determine your investments
08/04/99: Bank IRA the lowest-risk option
08/03/99: Reverse mortgages good for the elderly
08/02/99: Get the survey BEFORE you buy the house!
07/28/99: Get a lawyer -- it's worth it!
07/27/99: If it ain't broke...

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