Realty Investment (fund, credit, mortgage, Fidelity)

[Norm Barnes]

Why Buy a home - this is an over simplification:Mortgage Payment 257K Home 10% DP - PA Buyer
Schedule A Deductions
P&I $1,241.67
Interest(Annual) $ 11,487.49
Taxes(Annual) $ 596.84 $ 7,162.08
HO Ins $ 70.00
PMI $ 119.51 $ 1,434.12
Mo. Mortgage Payment $2,028.02Total RE RElated Deduction $ 20,083.69

Family of 2 Income $116,000.00

RE Taxes&State Tax $ 9,895.00
Home Interest & PMI $12,921.00
Contributions $ 1,560.00
Miscellaneous $ 20.00
Tax Deductions $24,396.00 $84,304.00 Taxable Income Owning
$97,300.00 Taxable Income Not Owning
Standard Deduction $11,400.00
Itemized Deduction $24,396.00
Exemptions(2) $ 7,300.00

Approximate Taxes $84,304.00 Owning $13,431.00
$97,300.00 Not Owning $16,669.00
Difference Owning $ 3,238.00
Monthly Tax Savings $ 269.83
Real Mortgage Payment $1,758.19
Real Estate Offices Open 9 AM Tomorrow? I hear ya - there's a risk of decreasing values - You save $3K per year - even if it goes down another 30K in tax
savings you could recoup that loss in 10 years and frankly I think you will be on the upside.

[MrRational]

was there a point to this?

just in case... NO; buying a home should NOT be considered on the basis of an investment.
hth

[mathjak107]

For sure, its an expense not an asset...a lifetime of housing costs easily surpass any residual value a home has.

[Ariadne22]

You forgot about maintenance. Figure $5-$8,000/year, or more, not to mention the aggravation that goes along with dealing with contractors. It never ends. That cost never bothered me years ago because values increased so substantially that I could see a 50% return on investment every year, assuming I went in with 10% or 20% down.

Now the values have gone in reverse. Pump $8 or $10K in a year for a roof, heating plant, remodeling, whatever, and value still falls. Kind of like putting money down a rathole, except you have to live somewhere. If you can't stand being a tenant, then buying is what you have to do.

Totally difference scenario now. Best to underbuy, imho. I once worked with a brilliant tax attorney who said he'd never own a home. It was a loser.

You buy a home to live in. Forget about it as an investment. Housing market in this country will never again be what it was because wages will never again be what they were. Figure the world average for wages, and than calculate back on housing. Of course, there will always be the exception.

[Norm Barnes]

Point. A person renting at $2000 per month pays more taxes than a person buying at $2000 per month and the person buying has an effective housing expense of about $1700 per month.

Realty is not an investment? Your opinion.

Housing values going nowhere a possibility depending on how deep the trough. Salary and Wages not in line with housing costs - 100% agreement. I hear a question as to how astute it is to own a home. In the example above Real Estate Taxes is more than 25% of the total payment. How many kids do you have in school right now? If you own multiple homes are your children entitled to a better education? Is the picture out of focus due to home prices or taxes or a combination of both? Home values are coming in line what do you think the future will bring for RE Taxes? Land Rent (Taxes) escalate such that we all will be renters to a certain degree and the Municipality, Township or county our landlord.

[Ariadne22]

I think you have to first deduct from your income all retirement, college education, emergency savings. Then, 25% of that allocated to PITI, plus another 3% of property value for maintenance. Is what is left sufficient for food, utilities, auto, entertainment, etc.?

If you buy a house AFTER first allocating money for your priorities which should be your future - your children's education and your retirement - you probably won't overbuy. You won't be able to afford to.

After all, you have to live somewhere. Renting isn't ideal - especially for families. I couldn't do it. I prefer the autonomy of home ownership - which these days is a real luxury.

Where you buy is pretty much determined by where you work, but there are lot variables on property taxes, etc. within geographic areas.

[mathjak107]

Originally Posted by Norm Barnes

Point. A person renting at $2000 per month pays more taxes than a person buying at $2000 per month and the person buying has an effective housing expense of about $1700 per month.

Realty is not an investment? Your opinion.

Housing values going nowhere a possibility depending on how deep the trough. Salary and Wages not in line with housing costs - 100% agreement. I hear a question as to how astute it is to own a home. In the example above Real Estate Taxes is more than 25% of the total payment. How many kids do you have in school right now? If you own multiple homes are your children entitled to a better education? Is the picture out of focus due to home prices or taxes or a combination of both? Home values are coming in line what do you think the future will bring for RE Taxes? Land Rent (Taxes) escalate such that we all will be renters to a certain degree and the Municipality, Township or county our landlord.

the homeowner may pay less in taxes but be poorer., the renter may have more money in pocket . in fact the renter may have the better tax deal.. its not 2,000 for rent or 2000 to buy in most situations. if you are talking about the same home it may be 3- 4k to buy vs 2000 when all the costs of ownership are figured in . it can take many many many years until rent surpasses costs to buy. i had just commented in a different thread about the tax benefits so here is what i wrote.

mortgage interest and real estate taxes are expenses not benefits. they are spending 3 or 4 bucks over and above the price of the house and getting back 1 of them, renting may mean spending 1 dollar and deducting 4.

they are no different then utility costs, your landscapper or any other bill you get for the house. the fact you may get a rebate on a tiny portion you spent is a moot point. your better off without the expense all things being equal.

in fact the renter may get a better tax deal. a married couple gets the standard deduction of 11,600 whether they had any deductions or not... by comparison the home owner most likely loses any benefit on the first 11,600 in real estate taxes and mortgage interest paid and actually shelled out those bucks. the renter may be flying the empty seats and gets a nice juicy deduction with little money spent on deductable items from the ole piggy bank.

any real savings for a home owner has to start after the standard deduction that everyone gets regardless if you rent or not. as a homeowner as an example you may pay 11,600 in real estate taxes and mortgage interest and get back 25% or 2900.00 of the 11,600 spent leaving you shy 8700 bucks... the renter may only have some state and local taxes paid ,say 4k or so and he gets back the same 25% of 11,600.00 spending only 1100 bucks out of pocket.
in fact trip the amt and say goodbye to your real estate tax deduction .

in many areas the difference between renting and buying can take 10 years at 3% rent increases to have renting more expensive. even here in nyc it can run 30% less to rent than buy.

investing the down payment money and the difference each month for that decade can leave you with enough money at the end to subtract out all the rent you paid and have enough left to buy 2 homes in many cases, i always mention the fact that my home i bought in 1987 was 169k in nyc. i sold it in the early 2000's for 335k... the same money in a nothing special mix of fidelity funds is worth almost 1.4 million,

home equity doesnt matter if you invest in other assets instead. tax deductions means your piggy bank is poorer because you are spending 4 dollars and getting back maybe 1.renting may work out spending 1 dollar and deducting 4.

[Norm Barnes]

Thank You. I've been looking for this response. I have written in other posts also that the Government killed the House Buying advantage by implementing the higher standard deduction. Is there an advantage needed to sell homes? Yes! The Government stimulations and tax reductions don't nearly move the market like the sale of a home does. Now think you are the one who pointed out power plant, roofing, gardening etc. Somebody either does it or makes it and it creates jobs.......

Still in the example above I took the difference in Standard vs itemized in consideration and if you shop your market with the declining values the Rent vs own comparison is pretty close. A row home sold at 120K has a payment with Taxes, Ins, MIP of about $1000 and the same area is getting rents upward to $1200.

You mention about upkeep quite abit and I'm sure that if you are a Landlord and renting you are not going to give your tenant a free ride if a power plant, roof, landscaping, etc. etc. etc is needed someone is going to pay the price and I believe it'll be the tenant.

The real deal killer in the housing market. Besides what you have pointed out is that Real Estate Taxes once imposed is stubborn and very difficult to get reduced especially in municipalities that tend to spend every penny in a proposed budget without a trace of belt tightening. The belt tightening has begun with the cutback in teachers which of course may mean bigger classes but to tell you the truth I'm no genius but I was able to learn in a class size of 50 or more.

Now in summary my position is Real Estate Taxes must be rolled back. Take the Real Estate Tax deduction on the Schedule A out remove it entirely - Government fund Education to a higher degree -- then rollback the Real Estate Taxes to include reduction of School, County and municipal. If this be done the mortgage payment would reduce 25% and it might balance out in the end (Home sales means jobs and more jobs - more tax revenue). The difference is instead of having to qualify for a $2,000 mortgage you would qualify at $1500. Yeah I know that is assuming that the schedule A deduction would be equal to the tax rollback and yeah it isn't but somehow the Real Estate Taxes, Muni, Co. Tax has to be held in check. If you give them a $1 they spend $2.50 where does it end.

Mathjak tell me do you feel Real Etate has always been a bad investment? If a tenant renting has 5 kids attending school in the area who pays the bill. He files taxes and he gets a higher refund. He may even qualify for an earned income credit. What's wrong with this picture? I can't begin to sort out the problems: Private Education lightened the public burden I think -- that's religion in School and lord knows why would anyone want to learn about a God. Tax Refunds to those who can now make a business out of getting pregnant. Payments off the books and under the table. Mortgage programs that are whacky. Good mortgage programs are being crippled. Values start at home and reinforced in the schools. There are so many problems where do you start. A little house, with a responsible family, who get together for dinner goes to church on Sunday and have some morality and integrity and are proud that they own a piece of the American dream; and, even if Eddie Haskell does come around once and awhile.

[mathjak107]

dont confuse real estate investing with the house you live in.

commercial real estate investing has been the best performing asset class every time frame for the last 10-,15,20-,25,30- years.

but the home you live in isnt an investment at all. its an expense like jewelry.

in fact out of all the things you could have invested in its been the worst performer barely beating out inflation and un-like rentals your footing the entire bill.

its represents your cost of housing plain and simple.

after a lifetime of expenses no home is worth more than you spent. if you move the clock keeps ticking,just keep adding up those expenses.

those tax deductions arent a positive thing since you need to pull 4 bucks out of your piggy bank for expenses to see 1 of them come back.

most folks forget the renter and homeowner both get that 11,600 standard deduction too when they talk about the tax deductions. the renter may spend 3-4 k on state and local taxes ,the rest of that deduction is a bonus . the homeowner actually spent that 11,600 and hasnt gotten back 1 penny more on it than the renter. most of the time when people compare they assume that the renter payed out the max on that 11,600 and most of the time they do not.

bottom line as to buy or rent is really not a financial issue as much as if you buy a home buy it for all the things your own home provides you with but leave investment off the list.

[mathjak107]

Originally Posted by Norm Barnes

Thank You. I've been looking for this response. I have written in other posts also that the Government killed the House Buying advantage by implementing the higher standard deduction. Is there an advantage needed to sell homes? Yes! The Government stimulations and tax reductions don't nearly move the market like the sale of a home does. Now think you are the one who pointed out power plant, roofing, gardening etc. Somebody either does it or makes it and it creates jobs.......

Still in the example above I took the difference in Standard vs itemized in consideration and if you shop your market with the declining values the Rent vs own comparison is pretty close. A row home sold at 120K has a payment with Taxes, Ins, MIP of about $1000 and the same area is getting rents upward to $1200.

You mention about upkeep quite abit and I'm sure that if you are a Landlord and renting you are not going to give your tenant a free ride if a power plant, roof, landscaping, etc. etc. etc is needed someone is going to pay the price and I believe it'll be the tenant.

The real deal killer in the housing market. Besides what you have pointed out is that Real Estate Taxes once imposed is stubborn and very difficult to get reduced especially in municipalities that tend to spend every penny in a proposed budget without a trace of belt tightening. The belt tightening has begun with the cutback in teachers which of course may mean bigger classes but to tell you the truth I'm no genius but I was able to learn in a class size of 50 or more.

Now in summary my position is Real Estate Taxes must be rolled back. Take the Real Estate Tax deduction on the Schedule A out remove it entirely - Government fund Education to a higher degree -- then rollback the Real Estate Taxes to include reduction of School, County and municipal. If this be done the mortgage payment would reduce 25% and it might balance out in the end (Home sales means jobs and more jobs - more tax revenue). The difference is instead of having to qualify for a $2,000 mortgage you would qualify at $1500. Yeah I know that is assuming that the schedule A deduction would be equal to the tax rollback and yeah it isn't but somehow the Real Estate Taxes, Muni, Co. Tax has to be held in check. If you give them a $1 they spend $2.50 where does it end.

Mathjak tell me do you feel Real Etate has always been a bad investment? If a tenant renting has 5 kids attending school in the area who pays the bill. He files taxes and he gets a higher refund. He may even qualify for an earned income credit. What's wrong with this picture? I can't begin to sort out the problems: Private Education lightened the public burden I think -- that's religion in School and lord knows why would anyone want to learn about a God. Tax Refunds to those who can now make a business out of getting pregnant. Payments off the books and under the table. Mortgage programs that are whacky. Good mortgage programs are being crippled. Values start at home and reinforced in the schools. There are so many problems where do you start. A little house, with a responsible family, who get together for dinner goes to church on Sunday and have some morality and integrity and are proud that they own a piece of the American dream; and, even if Eddie Haskell does come around once and awhile.

owning a home is soooooooooooooo much more in expenses than mortgage,taxes and insurance. all the extra expenses are staggering if you keep track. eventually you need major renovations and repairs too.

heck if it was only that trifecta of expenses owning our 2nd home in the poconos would be a no brainer... unfortunetly there are loads of ownership expenses that dont come with renting.