UPDATE: September 2008 Fairfax County Real Estate Bubble ** Prices Plunge 25% in past 12 months (to rent, condo)

[VRE332]

Originally Posted by mojo_1979

You're joking right? Pay an extra $1500 per month (buy vs. rent) to "save" $500 a month on my taxes? No thanks.

What kind of place are you planning to purchase?

[mojo_1979]

Originally Posted by VRE332

What kind of place are you planning to purchase?

??? I suggest you re-read the thread.

[sls76]

Originally Posted by mojo_1979

You're joking right? Pay an extra $1500 per month (buy vs. rent) to "save" $500 a month on my taxes? No thanks.

I don't necessarily disagree with you and my family is renting as well (in Richmond), but your math seems a bit off (although it depends on your downpayment). A mortgage on 80% of $600k at 6% interest plus $6,000/year in property taxes would be closer to a $1000/month tax deduction (federal and state combined)--even with 50% down the deduction is close to $700/month. Add in the principal you pay monthly from the $3500 and your close to break even if the market is stable. The problem is that it's not so for now I would guess your doing the smart thing.

[VRE332]

Originally Posted by mojo_1979

??? I suggest you re-read the thread.

What if your landlord forecloses?

[athousandlogins]

Curl up on the street and die?

I don't know about mojo_1979, but I rent...and if my rental property were foreclosed, I would, um, move somewhere else. It's not all that complicated.

Would it stink? Sure. It's not a fun risk to take. It's definitely in the back of my mind, as a renter. But there are risks to buying a home, too. We've all decided which risks we can best live with, for now.

[mojo_1979]

Originally Posted by sls76

I don't necessarily disagree with you and my family is renting as well (in Richmond), but your math seems a bit off (although it depends on your downpayment). A mortgage on 80% of $600k at 6% interest plus $6,000/year in property taxes would be closer to a $1000/month tax deduction (federal and state combined)--even with 50% down the deduction is close to $700/month. Add in the principal you pay monthly from the $3500 and your close to break even if the market is stable. The problem is that it's not so for now I would guess your doing the smart thing.

I think you're forgetting one important factor... the 'standard deduction'. To determine how much money one will save in taxes, you must take the total amount of interest paid per year then subtract the total amount of the standard deduction for the family and then multiply the remainder by the filer's tax rate.

In most cases, ones taxes would not be reduced by an additional $1000 per month as you stated above.

As an example...

$540,000 mortgage @ 6% ($600k purchase price w/ 10% downpayment)

$3,250 monthly payment + $500 monthly taxes + $50 monthly insurance = $3800 PITI + maintenance costs

$32,000 in interest payments for the 1st year + $6000 in personal property taxes + $6000 (state taxes, misc. deductions) = $44,000 total deductible taxes

$44,000 - $10,900 (standard deduction) = $33,100 net additional tax deduction

$33,100 * 0.28 (fairly common marginal tax rate after all deductions) = $9268 total tax savings.... or $772 per month

In summary...

RENT = $2000 per month
BUY = $3228 per month ($3800 per month - $772 tax savings + $200 per month maintenance)

By continuing to rent, I am able to save and/or invest the additional $1228 each month. As prices to continue to fall, this disparity will continue to decrease until it actually makes sense to buy. At that time, I will buy a home. And of course, this example doesn't even account for the fact that prices are falling at an unprecedented rate.

[VAReelEstate]

you obviously have not talked to a tax accountant about the deduction

[mojo_1979]

Originally Posted by VAReelEstate

you obviously have not talked to a tax accountant about the deduction

I stand by these numbers. Please feel free to point out any errors that you see. In order to determine 'how much more' you save by buying a home and itemizing, you must subtract out the standard deduction that you would have taken if you were renting and not itemizing.

You obviously don't have anything useful to add to this thread.

[sls76]

Originally Posted by mojo_1979

I think you're forgetting one important factor... the 'standard deduction'. To determine how much money one will save in taxes, you must take the total amount of interest paid per year then subtract the total amount of the standard deduction for the family and then multiply the remainder by the filer's tax rate.

In most cases, ones taxes would not be reduced by an additional $1000 per month as you stated above.

As an example...

$540,000 mortgage @ 6% ($600k purchase price w/ 10% downpayment)

$3,250 monthly payment + $500 monthly taxes + $50 monthly insurance = $3800 PITI + maintenance costs

$32,000 in interest payments for the 1st year + $6000 in personal property taxes + $6000 (state taxes, misc. deductions) = $44,000 total deductible taxes

$44,000 - $10,900 (standard deduction) = $33,100 net additional tax deduction

$33,100 * 0.28 (fairly common marginal tax rate after all deductions) = $9268 total tax savings.... or $772 per month

In summary...

RENT = $2000 per month
BUY = $3228 per month ($3800 per month - $772 tax savings + $200 per month maintenance)

By continuing to rent, I am able to save and/or invest the additional $1228 each month. As prices to continue to fall, this disparity will continue to decrease until it actually makes sense to buy. At that time, I will buy a home. And of course, this example doesn't even account for the fact that prices are falling at an unprecedented rate.

Look, I agree about renting in this market, but your math isn't correct. First, in VA you can also deduct your mortgage interest from your income on your state tax return so the deduction is worth closer to 33%. Second, netting out the standard deduction is only relevant if you have no other deductions. Most people buying a $600k home in VA will pay that much ($10,900) in state taxes, personal property taxes and (hopefully) charitable contributions. So again the deduciton is closer to $1000/month with 20% down on a $600k house. Finally, you're forgetting that you would be paying down the principal every month (about $500 on a 30 year fixed for the size loan we're discussing). So, the issue comes back to whether the market will continue to deteriorate which I think it probably will for a bit longer.

BTW, we were the second owners of a Tysons Corner condo. The original owners purchased it in 1999 for $205k. Even in this market identical units are selling for north of $400k. So, in nine years prices have doubled in that particular market even after falling close to 30%.

[mojo_1979]

Originally Posted by sls76

Look, I agree about renting in this market, but your math isn't correct. First, in VA you can also deduct your mortgage interest from your income on your state tax return so the deduction is worth closer to 33%. Second, netting out the standard deduction is only relevant if you have no other deductions. Most people buying a $600k home in VA will pay that much ($10,900) in state taxes, personal property taxes and (hopefully) charitable contributions. So again the deduciton is closer to $1000/month with 20% down on a $600k house.

My math is correct for the situation I described above. If I wanted to be conservative, I would have used a 25% marginal tax bracket b/c most people fall below the 28% bracket after deductions. Also, my scenario was based on a 10% downpayment. If I used a 20% downpayment, the tax benefit gets reduced even further.

If you want to run the numbers for a different scenario, then please do so. Each family is different and I can't possibly account for the unique tax situations of each and every family.

With that being said, at least we agree that renting makes more sense in the current environment.