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Home ownership

justsayno

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@ zillow.com browsing for some properties in nice neighborhoods.

Found a nice condo but the asking price is 800k

On top of mortgage, the gvt wants 1% in taxes. This means for a 800k house, down payment of 20% ($160000), assuming excellent credit: annual mortgage payments of $37,200 (3100*12) and $8000 in property taxes.

For comparison the Annual Rent for a comparable property is $24,000 (2000*12)

45200 (37200+8000) vs 24000.

Hard living the American dream in these parts.
 

longskate88

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So just rent forever?
 

Piobaire

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FYI, Uncle Sam is not the beneficiary of property taxes.
 

Harold falcon

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Lol, move to a less nice neighbourhood.
 

bmf895

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You are not factoring in the tax-deductability of mortgage interest and property taxes. This could considerably lower your effective monthly outlay. (This is neither legal nor tax advice and we have not established an attorney-client relationship.)
 

MasterOfReality

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Lower your standards for property?

Have you got beer income and champagne taste?

Plenty of friends I know got themselves massively into debt so they could live 'closer to the city'. One particular couple wanted to live the city lifestyle, so on top of the $900k house they added a $200k Porsche 911.

I bought a place 20 mins out of the city, paid half as much, will be paid off in another 3 years and ready to move onto the next one, whilst our friends are busting their ass to meet the interest only payments.

I know I'd rather be renting a place out to tenants, rather than renting a place to live in.
 

Archivist

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Originally Posted by harvey_birdman
Lol, move to a less nice neighbourhood.

Depending on where in CA he is talking about, 800K is a less nice neighborhood.
 

Mr Herbert

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i know interest rates are pretty low in the US but i wouldnt bank on them being around 4% p.a. for ever.

do your economic screening at 8 or 9%.

the good thing about mortgage is that (baring interest rate changes) it stays constant. that $3100 a month wont seem like much in 25 years. your rent will be more than double that assuming 5% p.a. rental growth.
 

thekunk07

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my mom had to remind me of where i came from today and that buying a house for 1.5 wasn't my birthright.
 

MasterOfReality

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Are interest repayments on your primary residence tax deductible in the states?
 

Mr Herbert

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i beleive so. a great idea.

however i dont know if you pay tax on capital growth if the property is your primary?
 

MasterOfReality

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Yeah we don't pay capital gains tax on the primary residence but our interest payments are not deductible.

Investment properties we do pay capital gains tax, but all expenses incurred (including interest repayments I believe) are tax deductible from your income. It only works out beneficial if your investment property appreciates more than the actual loan.

Basically our capital gains tax is basically part of your income tax. So if I pay 45c in the dollar income tax and I make $120,000k selling a property, then that $120k gets added on to my income and gets taxed at 45%.
 

tj100

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Originally Posted by justsayno
@ zillow.com browsing for some properties in nice neighborhoods.

Found a nice condo but the asking price is 800k

On top of mortgage, the gvt wants 1% in taxes. This means for a 800k house, down payment of 20% ($160000), assuming excellent credit: annual mortgage payments of $37,200 (3100*12) and $8000 in property taxes.

For comparison the Annual Rent for a comparable property is $24,000 (2000*12)

45200 (37200+8000) vs 24000.

Hard living the American dream in these parts.


You're not giving nearly enough weight to the tax deductibility of mortgage interest and property taxes, or accounting for the fact that at the end of the mortgage, you own an asset that's worth something (you hope).

In your scenario, the applicable comparison is the post-tax mortgage interest plus property taxes vs. rent. The mortgage principal payments are essentially required savings and will be re-couped, assuming that you believe that housing prices will go up in the long run (or at least in the period that you plan to live there).

So for you, assuming a 28% marginal tax rate, the $800,000 condo costs about $2,000 per month ($2,200 of mortgage interest, 666 of taxes, multiplied by 72%). Plus you're 'required' to save an additional ~$900/month as principal repayment.

So it costs the same as rent, but you've locked in your payments for 30 years, and have the possibility of upside (or downside) when you sell. Not really a terrible deal.
 

justsayno

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Thanks, tax benefits help to complete the puzzle.

Originally Posted by tj100
You're not giving nearly enough weight to the tax deductibility of mortgage interest and property taxes, or accounting for the fact that at the end of the mortgage, you own an asset that's worth something (you hope).

In your scenario, the applicable comparison is the post-tax mortgage interest plus property taxes vs. rent. The mortgage principal payments are essentially required savings and will be re-couped, assuming that you believe that housing prices will go up in the long run (or at least in the period that you plan to live there).

So for you, assuming a 28% marginal tax rate, the $800,000 condo costs about $2,000 per month ($2,200 of mortgage interest, 666 of taxes, multiplied by 72%). Plus you're 'required' to save an additional ~$900/month as principal repayment.

So it costs the same as rent, but you've locked in your payments for 30 years, and have the possibility of upside (or downside) when you sell. Not really a terrible deal.
 

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