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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: STEVE who wrote (6953)	11/19/2002 11:31:19 AM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Most houses aren't bought outright they are bought with a given amount down and then a 30 year conventional mortgage. So when you add in the real estate taxes, maintenance costs, condo fees and then subtract the tax deduction (minus whatever you could get using the standard deduction) you have a fairly accurate figure of what the house or condo costs per month. My very first house had a mortgage payment of $800 month before maintenance (PIT without insurance because you'd insure a rental as well) . I averaged $800/year maintenance and improvements on that house the whole time I lived there. If you figure in the tax benefits in the first years where you pay mostly interest (remember this goes down over time), the house created a tax benefit of $2744. You figure the interest payment pushes you over the threshold for using itemized deduction. So add approx. $9000 in interest, $1800 in real estate taxes, approx. $4000 in state tax you have $14800 in itemized deductions minus the $5000 or so standard deduction multiplied by the 28% marginal rate (remember if your marginal rate is lower or higher the interest deduction is worth less or more accordingly). This gave me a real monthly cost of $638. Interestingly enough I could have rented an identical house down the street for all that time (ten years) at the same price. When I sold that house I sold it for the exact same price I paid for it which means I lost the transaction fees. So in reality it cost me a bit more then renting, and numerous sleepless nights worrying about leaky roofs and water in the basement. Such is the problem with buying a house at an intermediate top and then having to sell it before the next top. Most people never make an honest assessment of what their house really costs them. Even when people would ask me to do it, they would do little mental games where they would add back in imagined benefits or project unreasonable future price appreciation just so they wouldn't come to the awful conclusion that they were paying more to own. Everyone always thinks that the market eventually will bail them out and they'll wind up with some big capital gain. Some get it.