BreadWithSpam[at]fractious.net wrote:

- quote -

At least in Texas, the property taxes are billed in October and payable anytime
up to January 31 without penalty. This lets you choose what tax year in which
to pay them.

Pay them in January and December of one year and itemize. Pay no property taxes
the next year and take a standard deduction. This reduces the problem you
discuss.

-- Doug

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<BreadWithSpam[at]fractious.net> wrote in message
news:yoby75qru5o.fsf[at]panix3.panix.com...
- quote -

I am not foolish enough to be leaving money on the table. I don't itemize
because I don't have enough deductions to get to $10,700. No state income
taxes and some of us choose not to live in more house than is necessary, so
property taxes are very reasonable.

My reason for commenting on this thread is to point out that renting goes on
and on, but there can be an end to mortgage payments. While Mark pointed out
there is a difference between cash flow and expense, part of the equation of
home ownership is just that: with time and careful planning you finally own
your home, rather than sharing ownership with the bank. At that time you
start living off your investment. No, this shelter isn't free; there are
both property taxes and maintenance costs. But it sure beats rent! (And
don't even start on me about lost opportunity cost.)

Elizabeth Richardson

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"Elizabeth Richardson" <erichktn[at]worldnet.att.net> writes:

- quote -

If you did itemize, you'd get to deduct your property
taxes. You must have a low income, no or low state
income taxes, and/or very low property taxes.

In many towns around bigger cities, property taxes on a
median home are high enough to put a single filer above
the standard deduction (ie. worth itemizing even without
any other deductions).

Of course, if one has, say, $6000 of deductible items,
at the margin, one is only getting a tax benefit on
that last $650 because of not using the std deduction.
(ie. it's not a completely trivial calculation to
figure out how much deductibility is really worth and
it depends in a whole variety of ways on one's tax filing
status).


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Elizabeth Richardson wrote:

- quote -

Understood. And as many thread here often do, this has splintered into a
number of facets of the buy/rent issue. I see your point, and you are
right, of course. Many issues are based on the margin, we discuss the
marginal tax rate which presumably dictates behavior, e.g. knowing my
next dollar of ordinary income is taxed at 28% may or may not impact my
investing decisions or decision regarding the next unit of labor I sell.

In the case of deductions (of interest and property tax) for home
buyers, the discussion usually centers around the purchase, the new
home, $250K, $200K mortgage. $12000 in interest, plus $4000 in property
tax. I'd assume (yes, I know) that the couple's income might just put
their state tax at a level where they may not itemize, but right on the
edge. Therefore, that $16,000 is a schedule A deduction. In the 25%
bracket, that's $4,000 or $333/month.

The rent/buy decision would look at this, and other factors and go from
there. That $333/mo may or may not be a big deal to some, but those on
the edge may be able to buy once that's taken into account. In theory,
congress taxes what they wish to curtail and offers deductions for what
they wish to encourage.

Joe

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On 2008-05-31 09:36:17 -0700, Mark Bole <makbo[at]pacbell.net> said:

- quote -

Another sometimes big deduction is the cost of paying a rental agent
and/or property manager to take care of the place and do a lot of the
onerous chores that people often mention as a disadvantage of owning
rental property.

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message news:UZWdncb-

- quote -

I'm afraid I, personally, don't see any tax breaks for the home owner. I own
my home free and clear. I don't itemize. However, because I have pre-paid
rent, I do not have to pay income tax on income I would otherwise need to
pay the rent. But I wouldn't call that a tax break. I will, of course, see a
break for capital gains when it comes time to sell, although they may change
that gains exclusion by then (30 years?).

Elizabeth Richardson

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On May 31, 1:21*pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
- quote -

To me, tax policy seems pretty neutral regarding renting or
purchasing. Perhaps it is a difference in perception, since in the
case of renting, the tax breaks go to the landlord, who presumably can
rent at a lower price because of them, but in the case of purchasing,
the tax breaks go directly to the owner. Although real estate agents
make a big deal about the tax breaks of purchasing, I doubt that they
are as significant as the agents make them out to be.

Dave

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- quote -

I think he meant subsidizes the homeowner as compared to the renter,
i.e. that the tax policy encourages purchasing.
Joe

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Mark Bole <makbo[at]pacbell.net> wrote:
- quote -

Property taxes in many communities are less for the homeowner than the
landlord as well.

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Dave Dodson wrote:
- quote -

There is different treatment, but in the end I think it somewhat
balances out.

Homeowner: does not report income from imputed rent, can often times
deduct most mortgage interest and all property tax, if itemizing
deductions. Upon sale can often exclude $250/$500K capital gain from
taxes, cannot deduct any loss.

Landlord: does report income, but can also deduct *all* expenses,
including insurance, repairs, HOA dues, etc that a homeowner cannot
deduct, plus of course 100% of mortgage interest and property tax. Upon
sale, has taxable gain (which can be deferred via like-kind exchange)
*or* can actually deduct a loss if there is one.

Depreciation can apply to homeowner (business use of home) and does
apply to landlord, but in both cases is "recaptured" upon sale. However
the landlord does have added benefit of being able to take losses,
including "paper" losses such as depreciation, up to $25K against
current income, and to carryover unused losses, which homeowner does not
have. Schedule A deductions for homeowner only come into play after AGI
is computed, so are not always as valuable.

-Mark Bole

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On May 31, 6:05*am, alex <a...[at]spam.me.not> wrote:
- quote -

What tax advantage does the homeowner have that the landlord doesn't
have?

Dave

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Mark Bole wrote:
- quote -

I agree with the main premise but, at least in the US, there is a
tax policy that generally subsidizes the homeowner. This subsidy is
often overstated, but it is there and sometimes significantly moves
the equilibrium point.

--
Regards,
Alex

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Mark Bole wrote:

- quote -

First of all, I was addressing the original statement:

"The rent money that you pay on many rentals would not begin to cover
the cost of ownership."

There are many ways to address "costs", as you point out. I'm not even
worrying about the equity, although a real hard analysis would of
course. Just going with a basic breakdown of month-to-month expenses
(cash flow as you say), it's currently less for me to own than rent.
I'd calculated the following.

$575 Mortgage P&I
$150 Taxes
$100 Maintenance
$50 Sewer/water
$80 Insurance
-----------------
$955 Total

Equivalent houses in my suburb, based on me looking in the Sunday
classifieds, are being offered at $1100 - $1300. That differential goes
into investments.

- quote -

A renter typically pays a security deposit and first/last month's rent.
The deposit and last month are lost opportunity as well, as many
landlords don't even pay basic interest on that money.

- quote -

That's doesn't factor in, because we're ingnoring the actual equity.
The six percent comes out of that. Whatever you get in equity is a
bonus. Rent has no equity build-up, of course.

- quote -

If one projected $15,000 for that sort of thing, it would only amount
to about $60 a month over 20 years. You can bump up the maintenance to
$200 a month if you like, that's fine with me.

- quote -

While true, that again goes to selling the house. That would come out
equity, and equity isn't in the discussion. If you didn't update, you'd
sell for less.

- quote -

What if you have a GOOD rental but the landlord decides to stop renting
to you? Then you're at the mercy of the landlord. With intangibles, it
all comes down to which you prefer, for instance flexibility or
stability.

- quote -

The "true" cost is so complicated and full of "it depends" that I
couldn't even make a guess for the most part. However, I so often see,
"you'll pay less per month in rent, which you can invest . . . "

Tain't always the case.




Brian

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Coffee's For Closers wrote:
[...]
- quote -

Typically the 6% real estate agent commission is paid by the seller.
Although, local market conditions, high-end prices, increasing use of
the Internet, and sales by owner are all helping to erode the
traditional monopoly on listings that have enabled real estate agents to
charge this fixed price.

- quote -

That's just the problem -- no one can stay in the same house forever.
Even the supposedly smart retiree who has the mortgage paid off and
doesn't keep up the building is just deferring expenses that someone,
someday, will have to pay for (or equivalently, offer a sales discount for).

As long as there are folks trying to claim that home ownership is
somehow cheaper than renting, there will be a need to inject some basic
economics into the situation. Like the post I replied to, often the
confusion is as simple as not understanding the difference between cash
flow and cost.

The cost of shelter is going to be the same no matter what. There is
really no difference between a landlord and a homeowner, except for
their relationship to the tenant. An owner-occupied property is simply
a bundle of shelter plus undiversified real estate investment, a rental
is unbundled shelter only. In the article which started this whole
thread, the differences observed in the "rent ratio" were strictly due
to the real estate investment portion of the equation, not the shelter.

The decision can and should be based on non-economic factors only. The
downside is that all too often, emotional attachment to a specific house
results in someone paying for shelter that has become over time way
beyond what they really need or can afford.

-Mark Bole

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In article <HKm%j.4971$mh5.2877[at]nlpi067.nbdc.sbc.com> ,
makbo[at]pacbell.net says...

- quote -


- quote -


Do you mean 6% or more in agent fees? Isn't that just a form of
business overhead, that gets passed onto the end customer (I.e.
the buyer of the house)?


- quote -


Huh? "HVAC"? Oh, you must be in one of those countries with
central heating and cooling. My heating is a portable plug-in
unit, and my cooling is an open window. Could be why I get so
grumpy whenever it gets below ten degrees Celcius.


- quote -


However, if you STAY in the house, then it doesn't matter how
fashionable your kitchen countertops are. If you are buying a
house for stable shelter that you own, then it doesn't matter so
much what somebody else thinks of the doors on your cupboards,
or the style of the bathtub, etc, etc.


- quote -


While leaving a rental is easier, there are plenty of people
renting in markets with low vacancy rates and high payments. I
have read that, in New York, people resort to paying brokers a
percentage fee (e.g. one month's rent equivalent or more) just to
find a room in a shared apartment. Plus first/last/deposit.
Which really does put many people in a vulnerable situation.


- quote -


Well, if I owned my own place, without any imminent plans to
sell, then I could let some things go pretty far. Carpet, paint,
etc looking bad. Kitchen countertop isn't fashionable. I
wouldn't prioritise that sort of thing, as long as the
electricity and plumbing worked, and the roof didn't leak. The
time to really care, would be when approaching a sale, and then
the fix-up costs are overhead. Or if the place is offered for
rental, and the fix-up costs would result in a better quality and
higher-paying tenant.


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In article <john-D448AB.06524128052008[at]comcast.dca.giganews.com> ,
john[at]johnweeks.com says...
- quote -


- quote -


A big danger zone is the smallest landlords. The average type
people with just one unit. Especially a lower-priced apartment.

Then, all the eggs are in one basket. A big
repair/maintenance/upgrade bill can put you in the red for an
extended period of time. If it is a multi-unit building, and you
only own one, then you can be strong-armed by a majority of other
owners who are willing to spend $thousands$ just to make
something look nicer. I have seen this happen.

And that also worries me about the prospect of ever becoming an
owner-occupier of one unit, and having co-owners vote for me to
share in a big upgrade cost for the whole building.

If you are a landlord, a good, stable tenant is like hitting a
jackpot. It is random and risky, especially when your pool of
prospects are people who circled the lowest priced five places in
that week's newspaper. People may come and go, and you will roll
the dice repeatedly.

And just one really bad tenant can run up $thousands$ in losses,
keeping you in the red long after they are gone. And that's the
normal irresponsible, trashy ones. While the cannabis dealers
and amphetamine labs can lead to eye-bugging hassle and expense.

Even a bad neighbour can cause financial problems.

I once saw a situation in which there was a good tenant for
years. And then, one of the OTHER units was bought by an
owner-occupier. And that new person was incredibly obnoxious,
and expected all of the owners' tenants to be her personal
friends and servants. This escalated to the point of the good
tenant being driven out by the new owner. Involving death
threats against that tenant, and police involvement (the
offending new owner was a divorced housewife who lacked
experience or understanding of proper adult boundaries.)

Bottom line: The good tenant's landlord lost the good tenant,
and may have rolled the dice multiple times since then. And the
abusive other owner is probably still causing tension, making
inappropriate demands, and even littering around the building(!)

I expect that the victim landlord STILL isn't turning a profit.
Especially since, before the bizarre-ness, he had been hit with
TWO of those multi-year-payoff upgrade projects. Plus the fact
that his wife has a dysfunctional concept of dealing with tenants
(and even took the abusive other owner's side in the problem with
the good tenant!)

Plus the minor fact that, the market rates for rents weren't
keeping up with the rising interest rates for the ARM mortgage on
that rental property. NZ has the highest interest rates in the
developed world - good for savings, and bad for many, many
mortgage-payers.


Fast-forward... My current landlord... He has obviously done
"bust-ass work." And has more than one property. Plus he does
management for other landlords. And he personally engages in
repairs, painting, etc. He even personally comes over and cuts
the grass.

The difference is that, this guy acts like a professional. And
he understands that, being a landlord is a JOB. And that it is
NOT about sitting on his arse, while money just magically rolls
in. That fantasy seems rather common, and is, I expect, a severe
barrier to success.

And anther key point is that, he appreciates me as a good tenant.


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Default User wrote:
- quote -

You are confusing cash flow with income/expense. Isn't part of your
mortgage payment going to principal? That's not an expense. Don't you
have equity tied up in your house? That's opportunity cost. Don't
forgot those extra transaction costs every time you took out a loan,
what if that money had been invested instead? And then there's that 6%
or more hit you'll take when you do eventually sell.

Your estimate of upkeep is probably low. It's pretty much a given that
after twenty years, even with replacing a few water heaters, kitchen
appliances, HVAC, and a new roof, parts of your house will still be
seriously out of date compared to the market. I'm talking cabinets,
flooring, countertops, fireplaces, windows, landscaping -- the big
ticket items.

No one is at the mercy of a landlord. It's much easier to leave a bad
rental situation without excess cost than a bad homeowner situation.

I've been a homeowner for nearly 25 years, also a landlord and renter on
several occasions over the years. But I have no illusions as to the
true economic costs of home ownership.

-Mark Bole

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On May 28, 12:05*pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
- quote -

Thirded! My neighborhood (three phase subdivision) is only 20%
occupied. Our phase is the oldest and only 50% sold. My wife and I
have noticed that prices haven't reduced at all. Rather, houses are
sitting on the market about twice as long and new construction has
slowed (but not stopped). Nothing solid, just our everyday
observations.

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On 2008-05-27 15:54:13 -0700, beliavsky[at]aol.com said:

- quote -


In the area where I live, this buy-vs-rent issue comes up a lot in
financial columns in the newspapers, in lectures and seminars put on by
advisors of various types, and elsewhere. If you know a little about
the person giving the advice, it is usually easy to predict which
position they will advocate. Most who strongly urge "buy" are real
estate professionals and a few fee-only financial planners. Those who
urge "rent" are almost always stock brokers or commissioned mutual fund
sales people. Big surprise! Nothing like a little unbiased financial
advice for the education of consumers.

Here is where it gets ugly: Back during the tech boom when stocks were
all the rage, some financial advisors were recommending to seniors who
owned their homes free and clear to take out home equity loans and put
the money into mutual funds. The calculations on paper were convincing.
In the long run stocks have always increased in value. So why let all
that money sit in a house untouched. Real estate is a thing of the
past! Look at what stocks have been doing in just the last few years!
Besides, interest rates on bank loans are low. You can make money with
a cheap bank loan and stocks that are sure to go up!

A lot of seniors took the bait, and a few lost their homes and
unwillingly became renters. Personally I have never heard of a single
person who actually profited from this strategy. After the tech stock
bubble burst arount 2000, you didn't see much of this kind of advice
any more and many of these former "advisors" were nowhere to be found.

My guess is that almost all successful financial planners with good
reputations who have been in business a long time own their own homes,
and that almost all successfull and affluent real estate brokers have
quite a bit of money in stocks.

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Default User wrote:
- quote -

Agreed about the local aspect. Zillow.com, which seems pretty accurate
for my area, shows my house down 12% off the peak which occurred around
mid-2005. For what it's worth, we are down 4% YTD. My retirement plan is
to assume we will stay in this house. If we downsize, maintenance goes
down, and a bit of cash comes out, but I never planned the house to add
to my net worth. Fresh data sometimes lags, but I'll maintain that right
through 2005, there was no real bubble. The huge bubble was in the late
70's through early 80's. I charted this and provided supporting data
sources at http://www.joetaxpayer.com/housemort2.html
Joe

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