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

To: GraceZ who wrote (242927)	4/2/2010 9:21:08 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 306849

OK, when you said "tax incentive" it sounds like some government handout (like the mortgage interest deduction) and i was unaware of such a handout. i now see you are talking about the benefit of living in your residence--the fact that you are not taxed on the roof-over-your-head dividend. imo landlords do not pass the cost of property taxes to renters, though obviously they want to recoup those taxes and then some, and price accordingly. the reason i say this is, rents are set based on what the market will bear. other than rent controlled areas, the govt does much less to distort the market price of rents than it does to distort housing prices through its various forms of meddling. as a result rents should be priced pretty efficiently. the renter will pay what they can afford according to preferences and supply. they don't care if the landlord is on the hook for some high amount of taxes, thus leaving only a small net return for the landlord. in condos, taxes and condo fees can account for half of rent. the renter doesn't care that the landlord only gets half of the rent check! this is an important point--to properly evaluate rental vs. buying, all these costs need to be considered. if a condo costs 500K and rents for 20K (very common on the coasts especially) it might sound like breakeven (compared to a 4% return on the 10yr), or even better for the house when you consider the interest on the 10yr is taxed at the marginal rate. but if the 500K condo has yrly taxes and fees of 12K, well then, renting the damn thing for 20K is only paying 8K more than the owner. so you only need to get an 8K after-tax return from your 500K. Renters pay MORE RE tax than owners of a primary residence you are talking about homestead exemptions. they have those here in TX as well. but actually, i think in general renters pay a lot LESS tax, because most renters don't live in houses; they live in multifamily dwellings (apartments) where the taxes are much lower. really this is a case of the small-scale landlord getting screwed by the large-scale apartment REITs. The after tax income I'd receive in a similar risk asset for the cash I'd get on a sale of my house is roughly equal to the rent of a like property. where do you get any income these days in "similar risk assets"? it seems most assets (including rentals) offer very little risk-adjusted income. i don't know what it's like where you are, but when you back out taxes, repairs and maintenance, fees and slippage, i think in many areas of the country rental properties are vastly inferior to the 10yr UST even without adjusting for risk. therefore, what i'd say is that in many areas of the country, for many types of housing, renting is the better deal. just park the money in USTs and wait for the next crsh -g-. Also, improvements that we do ourselves can add value to our house in excess of the cost, providing us with essentially tax free cap gains (tax free income for our labor).* that is an interesting point. i guess you will still be taxed indirectly because the capital improvements will increase rental income (and increase attendant tax liability) and also there will be an increased capital gain (eventually) upon sale. but they don't directly tax your labor. why not? i guess it's too tricky, to hard to report, too hard to evaluate, etc. a nice little loophole.