meramoney[at]gmail.com wrote:
- quote -

Just agreeing with Bread - I think 10%-12% appreciation for real estate
is too high.

meramoney[at]gmail.com writes:

- quote -

Um, no. Some individual properties, maybe. But broadly
and in the aggregate (ie. all residential properties
across the US - India, I suppose, may be different) have
appreciated at between 1 and 2% above inflation in the
long run.

A quick look at the USA-wide Home Price Index published
by the OFHEO (part of the Federal Dept of Housing and
Urban Development) shows that between 1975 and today,
homes have appreciated at an annual rate of approx 6%/yr.
Over that same 31 year period, inflation averaged 4.3%
per year.

The simple long-run real return on real estate is not large.

Real estate - as a *business* may do very well. It may
do very well as a leveraged investment. It may do very
well in the context of one having to live somewhere and
if one considers the imputed income (ie. if you bought
your house for cash and then rented it to yourself at
market rents), it can be great.

House Price Index:
http://www.ofheo.gov/download.asp

Inflation:
http://data.bls.gov/cgi-bin/cpicalc.pl


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Hi,

My name is Haru Mehra and I am an associate Financial planner in Delhi.

In my opinion you should go for the outright purchase of the house as
it has the following benifits :

1.You will get an property appreciation of 10% to 12% atleast and that
will be a safe and secure return unlike the high yield mutual funds and
stock investments which might give you just few percentage points above
what you will get in property and you are there is a chance of losing
capital also.If you invest in debt market the return is not more then
7% to 8 % and with the time to come even these instruments will face
problems.

2.Do go for the rent thing.Its a good idea but make sure then you have
a court certified 11 months agreement.Do not go for a notarised or
mutually agreed type of agreement.For an court authincated deed one has
to deposit one month rent in the court /registering authority.

3.Last but not the least "do thinghs that give you peace of mind" and a
house without EMI'S will give you a peace of mind and a sense of
security for u and your family in case life takes some unexpected
turns.

Regards.

Haru Mehra
www.meramoney.com
meramoney[at]gmail.com
Elle wrote:
- quote -


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

$cott wrote:
- quote -

This is of course true, but you snipped out the statement I was replying
to, "then all your mortgage is a tax write off." That was my context.

-Will

Will Trice wrote:
- quote -

interest. Some loans fees are deductible on an itemized basis like
discount points and real estate taxes, late fee payments, mortgage
prepayment penalties and prepaid interest are also deductible.

Regards,

H. Scott Miller
National Commercial and Residential Lender/Broker
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495, ext. 5
TOLL FREE FAX#: 1.877.578.2041
EMAIL: hugh.miller[at]carteretmortgage.com or EZMortgageLoanz[at]aol.com

Real Estate Help Desk (www.RealEstate-IQ.com)
Automated Loan Assistant (www.EZMortgageLoanz.com)

Ron wrote:
- quote -

NO DEBT IS THE BEST DEBT. I own my house outright (although the rising
taxes makes it feel like I am paying a mortgage).

SO YOU WANT TO BE A LANDLORD? This is so froth with issues that I can
only suggest going to a book store and reading up. Then check with
your accountant.

Thanks for all of the responses! They are much appreciated...

Ron

Will Trice wrote:

- quote -

Thanks for the note Will. My post was mis-leading at best. I need to
proof my own writing a bit better.
JOE

joetaxpayer wrote:
- quote -

Just to be clear for the OP, only the mortgage interest is deductible.

- quote -

Again, just to be clear, both dividends (non-qualified) and capital
gains (short-term) max out at your income tax rate, or 25% for your example.

-Will

Ron,

1. Separate the decision to buy a SFR vs. a duplex from the other parts
of the question. Do you want to be a landlord? Do you want to deal with
an investment property?

If you do want to invest in property then decide if you want the tenant
next door or at some distance. A duplex is great in that you have less
land cost for the amount of structure. It also implies that you are
very much available to the tenant if you live next door.

2. Once you have an investment decision (or before as the order is not
critical) you need to think about if you want your primary residence
free and clear. If you expect to have a mortgage or not really can be
answered independent of if you invest in a rental property

If you were to invest and buy two separate properties you might have
your home free and clear and a mortgage on the investment property. Of
you might do just the reverse thought that is less interesting at some
level.

3. If you are comfortable with a mortgage on your primary residence as
you expect to invest the difference just how are you going to invest
it? What skills do you have? Will it be short term investing or long
term? If short term you could get a HELOC as your 1st mortgage and only
draw down the funds if and when there is something worth investing in.
Otherwise why pay interest when you do not have an investment to tie up
the capital.

If you choose to invest and you choose to invest in property (duplex or
otherwise) there are a number of factors that impact your tax
situation. The mortgage on a rental can be offset against the income.
There will be real expenses and also paper expenses related to
depreciation. Hence you could run a tax loss on the property while
still having ample cash flow (the depreciation mostly generating the
paper loss). If you later choose to expand or otherwise grow your
investments you can use the 1031 tax deferred process to roll your
gains into the next investment property (or properties). 1031 exchanges
do not work for a primary or secondary residence so not where you live,
just what you rent.

I will stop here. After you get some of the basics clear in your mind
then going to the next level to look at the details will make sense.

Note that most financial planners have little professional training and
experience with real estate. It is not an asset class they get to buy
and sell so there is little hands on experience. For the most part a
financial planner will be able to produce an overall plan which
includes real estate but will not be schooled in the details related to
taxes, management, investing options and other fine points. If you were
to look at most FP's training and background you would see little on
the real estate side.

John Corey

Ron wrote:
- quote -

Ron -

Check the tax rate on the new property and compare it to your old tax.
Run a spreadsheet using some tax software to determine fairly precisely
how much of your mortgage interest you will actually be writing off,
given your specific situation. As speednxc pointed out, it makes a
difference and there are some subtleties far too complicated to guess
at. It's some pencil and paper work to move numbers from the tax
software onto the spreadsheet, but the amounts of money involved make
it worthwhile to spend some time with until you know you have it right.
Try to estimate future income and deductions, print out some tax forms
for different scenarios, and take that to your CPA to double check the
analysis.

The market usually runs bearish for less than a decade. With all the
"creative financing" out there, you might check for mortgage options
that leave you some flexibility other than all-or-nothing on the
mortgage. For example, a fixed with no pre-payment penalties and see
how that would stack up cost-wise (points, loan origination fees,
etc.).

Ron wrote:

- quote -

There's much to be said for being debt-free. On the other hand, the long
term return of the stock mmarket is greater than the after tax cost of a
mortgage loan. But (confirming Elle's comment) we are at a point in the
economic cycle, where after 26 (?) years of general rate decline, we are
likely to see the next 10-20 years offer a lower market return, 6-8% is
the range of predictions, not the historical 10 we've enjoyed. You can
see a guy, or you can run a spreadsheet to determine the numbers
involved. If your property tax and state income tax put you over the
standard deduction, then all your mortgage is a tax write off. A 6.5%
mort will cost you about 4-7/8 if you are in the 25% bracket. Dividends
and cap gains are 15% max, so 5.74 is what you'd need to break even.

The deck is stacked slightly in your favor, if you invest wisely you are
likely to come out ahead. Can you tolerate the volatility? If the market
has a bad crash, will you panic out?

- quote -

The two tenants I had to evict left a bad taste for rental property. But
the eye doctor living in my remaining rental, living in a three
bedroom house with the occasional visitor, has me holding that one. I'd
imagine a duplex will let you keep a close eye on the goings on. And you
can do the small repairs yourself. This is the difference in some cases
of being able to run a rental at a profit. When I paid a plumber $100 to
light a match to light a pilot light (I lived too far away and was too
busy to drive 240 miles round trip) I knew it was time to get out.
The duplex can be a great way to improve your position and have someone
else pay for the extra value of the property. Do you want to be a landlord?
JOE

I've enjoyed the heck out of owning my own home free and clear. I can
always use the money that isn't going for a mortgage to invest. It's
not lost. If you get a duplex you are obviously living in half the
house that you could be living in. The side of the duplex you rent out
is an investment. A low standard of living now is often the basis of
wealth later.

Check to see what the historic appreciation of duplexes is vs single
family residences. If it's only a little less and the appreciation is
acceptable then you are good. If it's very low, you may want to
reconsider.

You can/have to depreciate half your building if it is rented. This is
a tax write off of about $3600 a year for every $100,000 of rental
building cost. There eventually is depreciation recapture of 25%, so
the longer you hold the less this hurts in a net present value sense.
(Money later is worth less than money now.) This is a complicated
subject, so feel free to discuss it with your CPA for the ins and outs.


It would be easy as pie to keep the whole building to yourself owner
occupied for two years after a tenant leaves and get the capital gains
exemption on the whole thing. (You still have depreciation recapture.)

You will be living in close proximity to your renters, so think about
this. You are their landlord, not their friend. Be friendly, but it's
a business relationship. It will also be very easy for them to
complain about every little thing at the exact moment it is frustrating
them. Think about using voice mail or a pager to contact, rather than
banging on your front door (unless water is streaming down the stairs).
Get a signed lease and run a credit check.

Just for the heck of it learn what a CAP rate is and figure out what
your duplex will be. This helps you guage this investment vs other
investments (stocks, CDs, NASCAR commemorative plates). Remember real
estate gets returns from CAP and appreciation.

Once you have a solid foundation under you, you may want to look at
buying leveraged rental real estate, so learn the game as if you were
doing it for a living.

Good Luck!

My husband and I were in this situation when we sold our home in FL in
May '05 (good timing!).

We didn't own 1 of our 2 cars, the loan for which had a higher
interest rate than a mortgage. We wanted to pay off the one car, sell
the other '91 car and buy a newer used car as a replacement.

So, we ended up holding enough of the proceeds to own both cars. We
also held some for improving the new home's backyard area. We paid off
some school loan debt as well, which also had higher interest rates
than our mortgage.

If you have debt with interest higher than mortgage rates, I would save
proceeds to pay off the debt.

"Ron" <Brock_zz[at]yahoo.com> wrote
- quote -

I just want to double check: Would the interest be so high
that its deduction far exceeds the standard deduction?

- quote -

Just my opinion: I think stock market returns are going to
tend closer to 5% rather than 10% in the coming decade or
so, based on commentary from people like Yale's Robert
Shiller on the current overpricing of stocks. Not taking a
mortgage (interest rate 5.5% to 7% or so?) by contrast is a
sure thing.

- quote -

As long your budget and emotions can deal with the
occasional empty unit and occasional eviction etc. process,
sounds like something to continue investigating.

I am selling my current home in less than a month (already under
contract) and will have enough net proceeds to buy a new home outright
with the funds from my current home sale. The amount of funds I will
have from the transaction is the price range of homes I am interested
in buying. I have never been in this situation before and was wondering
if I should visit a financial planner to determine whether I should
roll all of my profit from my current home into a new home, or not do
so and get a mortgage while investing the remainder. I realize of
course that home mortgage interest is deductible, but the idea of
having no mortgage is appealing to me. Any suggestions as far as
advantages or disadvantages of buying the new home outright would be
greatly appeaciated.

I am also considering buying what is termed a "duplex" as my new home
where I can rent one unit or part of the home and live in the other.
Such a rental would pay for all property taxes, as well all of the
regular monthly household expenses (phone, cable, utilities, etc.) with
extra left over each month as profit. Any comments regarding benefits
or pitfalls of going this route would be greatly appreciated.