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Yes, but as the other poster said, in the long run the landlords will get rid of the house which reduces the supply until the rent at least equals the cost.
If your carrying cost is $800 you won't have people trying to be landlords until the market will bear an $800 rental rate.
If a landlord sells a rental property, that just means someone else buys it. The property does not cease to exist.
This is where the "Buying a House is for Suckers" crowd always fails. When someone buys a can of Coca Cola, they are paying for both the product and the aluminum can. They are also paying for the printing, the advertising, the labor, the health insurance, carbon dioxide, caramel coloring, spent coca leaves, high fructose corn syrup, "merchandise 7x" (whatever that turns out to be), water and most importantly, PROFIT. I probably omitted dozens, if not hundreds of different things the consumer pays for when purchasing a can of Coke. But the consumer pays for all of them, plus profit on the top. Just because there isn't a line-item breakdown of where that $1 goes on a can of soda doesn't mean all the expenses of putting that soda into that vending machine don't exist.
Why is it that they can wrap their heads around that when purchasing a $1 can of soda? But they cannot wrap their heads around that when shelling out monthly for rent?
You have to distinguish between accounting profit and economic profit.
In accounting terms, over any period 15 years in length or longer, a buy and hold landlord will almost always come out ahead. However, that accounting profit does not adjust for opportunity costs.
In order for buying to be better than renting, the economic profit, not just the accounting profit, must be greater than zero. This profit would subtract out both the forgone wages from time spent on the property, and the forgone returns from alternative placement of the landlord's capital (such as a stock index fund).
Whats all this stuff about 47% not paying taxes? Is it due to child deductions? Other than 1 summer when I only made $3500 and couldn't find any additional employment while in school (it was 2009 when the economy was in the toilet) I've always paid some sort of federal/state tax even after my refund. Heck I paid positive federal taxes when I worked Dairy Queen in High School.
This year I made ~55k and will pay thousands in federal tax (after deductions) in addition to state, medicare and social security. And then theres the fact that everyone already pays 0.23 on the dollar in tax for everything they buy. Please elighten me to say why people were saying noone below 88k pays taxes?
I do agree perhaps there needs to be a limit on child tax deductions to maybe 2 to prevent people from having kids they cant afford but the Romneys of this world need to realize most people pay taxes of some sort. Even renters pay property tax indirectly.
Interestingly, I read an article that stated American tax burdens were actually similar to people in several countries in Europe like Germany once you factor in all our additonal, sales, goods, property taxes, infastructure taxes. The only difference is in most other countries people get at least partially free healthcare, excellent infastructure, subsidized schools. In the US we seem good about giving away $$ in government contracts with no strings attached, and wastefully paying crony capitalists with our dollars instead. in the USA a lot of tax dollars goes to corporations like colleges or health insurance companies and ends up being funneled to the people at the top rather than being used effectively where else can public college presidents make millions?) The reason people here hate taxes so much is because so little of it is actually used to help Americans.
Last edited by njbiodude; 01-23-2015 at 11:48 AM..
FairTax is a proposed national sales tax on new goods and on services. Rent is a service, thus would be taxed. Existing homes are not new goods, and thus would be exempt from tax whenever purchased.
Landlords would be required to remit a 23% tax on the rents they collect, so they would increase rents accordingly, which works out to about 30%.on top of the pre-tax rent. (e.g. in order to remit the proper tax on (pre-tax) $1000, a landlord must collect $1298.70 gross rent - at the transition point the renter would start paying an additional $298.70)
This is assuming static rents, i.e. rents would not fall under the FairTax.
Average housing rents today probably aren't far from $10K per year, so the FairTax would take a huge bite out of renters.
Having studied the Fair Tax, do you believe the part in red to be a valid assumption?
No discretionary income= no funds available to invest, hence no capital gains, hence no IRA contributions and no corresponding income adjustment.
Most people, even the poor, have some discretionary income. If one chooses to spend it on booze, tobacco, drugs, new cell phones, etc., then it isn't available for investment purposes.
Most people, even the poor, have some discretionary income. If one chooses to spend it on booze, tobacco, drugs, new cell phones, etc., then it isn't available for investment purposes.
Booze and tobacco are more common for lower income (same with lotto tickets) but new cell phones I don't think is as true. Do you know of a study that I don't about the poor and new phones or is this just more anecdotal evidence?
Booze and tobacco are more common for lower income (same with lotto tickets) but new cell phones I don't think is as true. Do you know of a study that I don't about the poor and new phones or is this just more anecdotal evidence?
Anecdotal, from working for many years in low income areas of Atlanta. However, I'm not the only person who has noticed such things.
Sure, the landlord must conform rent to the market. But if the landlord is losing money every month leasing his or her house, he or she will soon sell the house to drop the non-performing asset. The funds from the sale can be allocated to more profitable investments.
If renting houses is such an awful use of capital, there wouldn't be so many landlords.
You are never guaranteed to get the price you need in the sell of the house...NEVER. The market sets the value; it doesn't care what you owe or what you put in to it. Didn't we learn anything from the housing bust? Your home is worth what it will close for and not a penny more.
Many people are STUCK being landlords because they couldn't sell when the bubble burst and had to move for jobs. We got caught up in that mess and luckily were able to write a check to close. Some can't and are now landlords.
There is a lot of anecdotal evidence, but probably no study to cite. I have a temp working here now that missed a day due to no money for the bus but she has an i-phone. I have actually seen homeless people in Seattle using smartphones. I suppose they must be prepaid if they have no address for the billing, but I sure found it interesting to see.
Sure, the landlord must conform rent to the market. But if the landlord is losing money every month leasing his or her house, he or she will soon sell the house to drop the non-performing asset. The funds from the sale can be allocated to more profitable investments.
If renting houses is such an awful use of capital, there wouldn't be so many landlords.
"Losing money" in the context of real estate does not equal mortgage payment + taxes + insurance
The real estate is an asset. It changes in value, which impacts the property owners ultimate return. As another poster mentioned, you would have to compare the overall performance of that asset (rent payments + any appreciation) less costs (down payment, loan principal payments, loan interest payments, taxes insurance) to the other options the owner had with the down payment (stocks, mutual funds, business investments, etc.).
A big advantage of the real estate is that it provides the opportunity for a large asset investment with a relatively small up-front payment and a low interest rate on the loan. So instead of buying $50k worth of financial instruments, the buyer spends $50k and gets a $250k asset (with the balance on a low-interest loan). If that $250k asset appreciates at the same rate as, let's say, potential mutual funds, then the buyer has 5x the amount of wealth creation (less interest on the 200k loan). That's a big if, of course.
Quote:
Originally Posted by lycos679
Yes, but as the other poster said, in the long run the landlords will get rid of the house which reduces the supply until the rent at least equals the cost.
If your carrying cost is $800 you won't have people trying to be landlords until the market will bear an $800 rental rate.
By "carrying cost," do you simply mean interest, taxes, and insurance? Because the principal portion of a payment goes to acquiring ownership of the asset itself. And like another poster mentioned, the house does not disappear because the landlord sells it.
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