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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Wyätt Gwyön who wrote (242973)4/3/2010 9:39:32 AM
From: GraceZRead Replies (2) of 306849
 
Your post about it being advantageous to be a renter presupposes that rentals are offered at a loss or break even to the renter. If this were true there would be a complete dearth of rental property. My renters bought and paid for my houses several times over even while I was able to take paper losses on active wage income over and above rental profits.

A free market goes both ways, if rents are subject to what the market will bear so is the availability of rental supply. To say that rentals are offered below the cost of taxes and repairs on the building is to say that landlords will continue to supply rental housing without a profit. Several cities that imposed draconian rent controls have found that to be an idea that is false (and a law almost impossible to repeal even as stupid an idea as it is). When rents fall below break even you get abandoned tax delinquent property as you have in all major rust belt and Eastern cities.

BTW the mortgage interest deduction for homeowners was passed primarily to make the tax deductions EQUAL with the tax deductions available on rental property. Rental property has always enjoyed a tax deduction on mortgage interest as well as depreciation which frequently turns real cash flow into untaxed income (regardless of how many times you pull equity out of the property).

As a landlord, I had paper losses on real income every single year I owned my properties due to depreciation. Some of that got recaptured when I sold but if you are a big REIT or a professional (unlike a Mom and POP which is what we were) you do an exchange and never pay the damned cap gains. My own house was completely paid for with the after tax income from just one rental property that worked out rather well.

I for one have never owned a property that didn't do better than break on the very first year, with a rising profit each subsequent year (because the rents go up with inflation while the mortgage expense remains constant) but then we only bought property when the cost to own was lower than the rent we could charge (yeah, there was such a time and there will be again).

I lived in and owned properties that had caps on the amount my RE taxes could go up each year based on inflation and the property tax on a older building was held down by depreciation of the structure. IOWs the tax assessment was in two parts, the land and the improvements. Only the land assessment was subject to the inflation of market prices, the improvements had depreciation factored in on older buildings with no factoring for renovations. My rentals had extremely small land percentages and were old buildings. OTOH they were located in the city which had a tax rate twice that of the surrounding suburb. Still, the RE taxes were a reasonably small percentage of the rent (1 to 2 months rent). It would be really hard to say that I paid those taxes not the renters.

The mortgage, insurance and taxes usually consumed less than 80% of rents on day one (with one property that was 50% on day one) and got progressively better with each year we owned the property. We only sold our properties because during the RE madness the cap gains we could realize that day outstripped the future income stream.

edit: Maybe the reason you think there is so little profit in rental property is because most REITs and professionals actively manage their properties in such a way to eliminate taxable profits? IOWs they strip out equity refinancing at ever higher levels, raising the deductible expenses each year, which always gives the appearance that the building is not profitable.
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