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Most people don't really understand the value of owning a home. It affords tax-free income in the amount of the fair market rental.
Stay with me...
When you own a home & live in it, you "pay yourself rent" in the amount of the fair market rental rate. This is, of course, not reported as income on an IRS form 1040, so that income is tax-free.
Stay with me...
Imagine you and I own otherwise identical houses right next to each other. Under normal circumstances, each of us lives in the house we own. Imagine as a thought experiment that you rent your house to me, and I rent my house to you. We each pay rent to the other, and each receive rental payments from the other. Because these houses are identical, the fair market rental rate is also identical. Each of us pays exactly the same $$$ in rent as we receive in rental income, those cancel each other out.
But not when it comes to income tax time.
When calculating our respective tax obligations, each of us has jobs with income, various investments, and under the hypothetical example, each of us would also report rental income in the amount of the fair market rental rate.
Let's say for the sake of argument that the fair market rent is $3000/month. So, each of us pays the other $36,000/year, and each of us receives $36,000/year. At tax time, each of us reports an extra $36,000 in extra income. We also have some expenses associated with that income such as depreciation expense, and various other landlord expenses for repairs and the like.
At the end off the day, though, we probably end up paying our marginal tax rate on that extra $36,000 of income.
So, coming back to reality... when we own a home & live in it, we "pay ourselves rent" and that rent is tax-free income (not reported as income on our IRS 1040s). If the fair market rental rate is $3,000 per month, we have tax free income in the amount of $36K/year. Not too bad.
That, boys and girls, is the true financial benefit of owning a home.
Imputed income isn't a real thing. You have to live somewhere - but to be annoying, and to try to steal even more of people's money, commie wackos come up with "ideas" like this that purport to be based in reality. You do not rent yourself a home. You own the home, you live in it it...thats all. You are not renting from yourself. You are simply using something you own....just like when you brush your teeth, are you renting yourself a toothbrush? No, because that would be f%@king ridiculous to suggest.
And in your example, you have ignored the fact that you still write off the mortgage interest expense, except when you are a landlord, as opposed to simply residing in property that you own you ALSO get to write off every single penny of expense associated with the property - all of the utilities, for instance , the gardening service, every single home repair, anything that breaks and is replaced, all of it. Maid service ? No problemo - its written off. Can't do that when you live in your own house.
My assessment is that the market is driven by
1. Asian investors parking money in the US. Parents/Relatives of Chinese/Indian H1B workers with lot of cash will invest here.
2. Dual Income families working in tech
3. Start up cash rich folks.
If you take superheated markets like Cupertino and PA. You are certainly not competing with financially irresponsible people. You are competing with a couple working in Google-facebook-apple-netflix- box-salesforce. you name it. Between 2 people in early 30s working in successful trendy tech companies thats ~ 400-500K/yr of income . Bidding 2M for a home for a couple like this is not that far fetched.
Thats the real engine of the price rise. This is not conjecture, I know enough people bidding.
LOL. 400-500K income. Please. This is nonsense. There are surely some people that make that kind of money, but you only have to look at the median income data to realize that is by far an exception. Median household income in Cupertino is not even half that amount. What is really going on in most situations in Cupertino is that you have two people living on a financial knife edge, one job loss away from disaster.
LOL. 400-500K income. Please. This is nonsense. There are surely some people that make that kind of money, but you only have to look at the median income data to realize that is by far an exception. Median household income in Cupertino is not even half that amount. What is really going on in most situations in Cupertino is that you have two people living on a financial knife edge, one job loss away from disaster.
You are wrong 400-500 income is not impossible. Dual income with 2 professional workers. For example 130k+stocks+ bonus each is 400k for sure.
LOL. 400-500K income. Please. This is nonsense. There are surely some people that make that kind of money, but you only have to look at the median income data to realize that is by far an exception. Median household income in Cupertino is not even half that amount. What is really going on in most situations in Cupertino is that you have two people living on a financial knife edge, one job loss away from disaster.
That post does not make any sense. The median income reflects the income of all residents, and about 0% of them are in the process of buying a property in their own neighborhood. The people who will successfully purchase into the handful of inventory available are a micro-percentage of their own current neighborhood, median income unknown and irrelevant as well, and a percentage of the exception you deride.
Imputed income isn't a real thing. You have to live somewhere - but to be annoying, and to try to steal even more of people's money, commie wackos come up with "ideas" like this that purport to be based in reality...
I can't take credit for this analysis... back when I was in grad school at the University of Chicago, I heard both Arthur Laffer and Milton Friedman discuss this. I'm sure Arthur would be amused at being referred to as a "commie wacko", and Milton would just shake his head & move on, muttering to himself that you probably went to public school.
And I did call it a hypothetical thought experiment -- you must have missed that in my post.
Quote:
Originally Posted by phantompilot
... And in your example, you have ignored the fact that you still write off the mortgage interest expense
No I didn't.
Quote:
Originally Posted by phantompilot
... except when you are a landlord, as opposed to simply residing in property that you own you ALSO get to write off every single penny of expense associated with the property - all of the utilities, for instance , the gardening service, every single home repair, anything that breaks and is replaced, all of it. Maid service ? No problemo - its written off. Can't do that when you live in your own house.
As I said in the thought experiment, as a landlord you have certain legitimate business expenses:
Quote:
"We also have some expenses associated with that income such as depreciation expense, and various other landlord expenses for repairs and the like."
Quote:
Originally Posted by phantompilot
... but to be annoying, and to try to steal even more of people's money, commie wackos come up with "ideas" like this that purport to be based in reality...
Nothing about my post is annoying. It is an academic economic analysis.
No, I'm not a commie proposing some new taxation scheme, nor am I a redistributionist -- just the opposite; I'm a conservative capitalist.
I'm pointing out a framework for the analysis of an economic phenomena. I can explain this to you, but unfortunately I can't understand it for you. I would if I could.
Last edited by SportyandMisty; 05-03-2015 at 08:39 AM..
@phantompilot i think you may be right about people being one job away from disaster. I am single income provider and i certainly am one job loss away from losing my house. But this is likely true for a lot of people . As others have pointed out, those income levels are not common in general but are common for people bidding in the hotbed in bay area. If you dont fit that bin and still try to own a home , you move further out. I bought a home recently and i am very much at the edge. But i like to think its not because i am dumb or irresponsible, but because i am trying to do my best for my family. People are just trying to keep up
I can't take credit for this analysis... back when I was in grad school at the University of Chicago, I heard both Arthur Laffer and Milton Friedman discuss this. I'm sure Arthur would be amused at being referred to as a "commie wacko", and Milton would just shake his head & move on, muttering to himself that you probably went to public school.
And I did call it a hypothetical thought experiment -- you must have missed that in my post.
No I didn't.
As I said in the thought experiment, as a landlord you have certain legitimate business expenses:
Nothing about my post is annoying. It is an academic economic analysis.
No, I'm not a commie proposing some new taxation scheme, nor am I a redistributionist -- just the opposite; I'm a conservative capitalist.
I'm pointing out a framework for the analysis of an economic phenomena. I can explain this to you, but unfortunately I can't understand it for you. I would if I could.
Imputation as an idea didn't originate with either Laffer or Uncle Milty but applying it to ownership is a ridiculous notion that strains credulity. You make a sandwich...to argue you have an accession to wealth because you didn't go to Subway - you'd have to be brain damaged to entertain this kind of "thinking". The impulse to apply this to taxation comes from leftist thinking - what it is, is a thought experiment devised by cretins attempting to rationalize further theft from other people. There isn't any scientific or economic analysis behind that - You do not receive income from home ownership, there is nothing to "impute". You may or may not be avoiding costs you would have experience in the rental market. What this is, is a bastardization of perfectly valid marginal utility theory. Menger would be appalled to see this btw.
In any case, your argument seems to be the thesis that the value of home ownership rests on the notion of imputed income. It does not. It rests on the simple and obvious benefits of home ownership, such as control over the property, gaining equity in real property via an additional payment which is akin to the difference between term and whole life insurance - the product is the same, one builds value through acquisition of equity in an underlying commodity...that this comes with protection from increasing rental prices is merely ancillary to the fact that you own the property and thus are no longer participating in a possibly volatile market for rental units.
By the same defective logic you could apply a marriage tax to all married persons based on the argument that by being married they are no longer using services such as paid escorts or Match.com or E-harmony and saving money on expensive dates and flowers. (never mind all the other costs that come with marriage, eh?).
That post does not make any sense. The median income reflects the income of all residents, and about 0% of them are in the process of buying a property in their own neighborhood. The people who will successfully purchase into the handful of inventory available are a micro-percentage of their own current neighborhood, median income unknown and irrelevant as well, and a percentage of the exception you deride.
The stats don't lie. Median income in Cupertino is less than half of the income range given.
The stats don't lie. Median income in Cupertino is less than half of the income range given.
The statistic is likely correct, but your application of it and conclusion are not.
"Median income of Cupertino residents" is not the same thing as "Median income of people currently buying homes in Cupertino". That is such a simple concept that it shouldn't need to be explained twice.
Homes in my neighborhood average 45+ years old. Most of the people have been here for decades and could not afford to buy here today. There is a huge difference between the incomes of buyers in the last three years, and the longtime residents. There is also a huge difference in assessed value on otherwise identical homes, and corresponding huge differences in property tax bills. Which makes it kind of annoying when longtime residents complain on Nextdoor about not getting their money's worth (specifically police staffing) when it comes to taxes.
The statistic is likely correct, but your application of it and conclusion are not.
"Median income of Cupertino residents" is not the same thing as "Median income of people currently buying homes in Cupertino". That is such a simple concept that it shouldn't need to be explained twice.
Homes in my neighborhood average 45+ years old. Most of the people have been here for decades and could not afford to buy here today. There is a huge difference between the incomes of buyers in the last three years, and the longtime residents. There is also a huge difference in assessed value on otherwise identical homes, and corresponding huge differences in property tax bills. Which makes it kind of annoying when longtime residents complain on Nextdoor about not getting their money's worth (specifically police staffing) when it comes to taxes.
Yah, I understand that - it is a valid point. Only about 15% of the housing stock has tuned over in the last 15 years. But I think you will see that drastically accelerate - because lets face it, those long term owners are getting really old and most of their kids have long since moved away (and not likely to come back to occupy mom and dads house).
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