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Re: Housing: Own versus Rent
Old 10-29-2006, 07:19 PM   #41
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Re: Housing: Own versus Rent

Quote:
Originally Posted by Independent
I agree with the general themes on this thread: rent vs. buy is mostly about how often you want to move, the economics vary a lot by local market conditions, and in recent years house prices in the US have appreciated by a lot more than the CPI.

I see one other factor that hasn't been mentioned. Buying allows you to partially "lock in" your housing cost, which is a big part of your basic expenses, against inflation.

If you have the cash to buy, but you rent anyway, then you're sensitive to the differences between investment yields and rent increases. Worse yet, if much of your retirement income comes from a fixed pension, then inflation is your biggest risk, and anything you can do to dampen it (such as owning a house) is to your advantage.

Spreadsheet analysis won't necessarily tell you this, because we normally input "most likely" inflation rates instead of "worst plausible". To a certain extent, owning is insurance against inflation. Insurance isn't a very good deal when nothing bad happens, but you may buy it anyway because it protects you when events get unusually bad.
But real estate taxes as well as maintenance and repair costs increase on an annual basis too. And if you live in a condo or a townhouse your monthly fees will most likely go up annually.
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Re: Housing: Own versus Rent
Old 10-29-2006, 07:40 PM   #42
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Re: Housing: Own versus Rent

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Originally Posted by Corporateburnout
But real estate taxes as well as maintenance and repair costs increase on an annual basis too. And if you live in a condo or a townhouse your monthly fees will most likely go up annually.
All are expenses that will be passed along to tenants as the market allows. At least if you own you have some control over expenses.
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Re: Housing: Own versus Rent
Old 10-29-2006, 07:43 PM   #43
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Re: Housing: Own versus Rent

Quote:
. And if you live in a condo or a townhouse your monthly fees will most likely go up annually.
It doesn't even take a condo or townhouse. Many (most?) homes around here belong to some sort of HOA that will have fees that rise over time. It might be far less significant than with a townhome but one often sees $30-$40 month fees with single family dwellings.

One thing that I think is most overlooked is what is often mentioned on this board: you're not always getting the real estate deduction in the equation, you're getting the difference between that and the standard. If you itemize 14k with 12k of it being real estate costs you're only making out the difference from the 10k (or whatever it is) standard.
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Re: Housing: Own versus Rent
Old 10-29-2006, 07:46 PM   #44
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Re: Housing: Own versus Rent

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Originally Posted by WRBT

One thing that I think is most overlooked is what is often mentioned on this board: you're not always getting the real estate deduction in the equation, you're getting the difference between that and the standard. If you itemize 14k with 12k of it being real estate costs you're only making out the difference from the 10k (or whatever it is) standard.
Own it through a corp. That way you get everything from the first dollar.

JG
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Re: Housing: Own versus Rent
Old 10-30-2006, 02:44 AM   #45
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Re: Housing: Own versus Rent

owning it thru a corporation wouldnt help. an llc or chapter s is taxed at the personal level and a regular corporation would get it taxed 2x ,once corporate and once on a personal level...

unless im missing something i see no advantage.
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Re: Housing: Own versus Rent
Old 10-30-2006, 04:14 AM   #46
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Re: Housing: Own versus Rent

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Originally Posted by mathjak107
owning it thru a corporation wouldnt help. an llc or chapter s is taxed at the personal level and a regular corporation would get it taxed 2x ,once corporate and once on a personal level...

unless im missing something i see no advantage.
You are correct about an llc or Sub. S, but the 2X taxation only applies to dividends in a C corp. In fact, I believe there are new rules that can make
dividends partly deductible in a small corp. It seems to me (by using a corp.)you can get 100% deduction of all your
RE related expenses and still have your total personal deductions.
Of course, the corp. would have to conduct legit. business and keep records.
Unless I am missing something? Martha?

JG
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Re: Housing: Own versus Rent
Old 10-30-2006, 05:10 AM   #47
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Re: Housing: Own versus Rent

i got a feeling salaries, medicare taxes,unemployment taxes,social security taxes would all have to be paid as you cant just pull dividends from a corp without triggering an audit but would need a salary too i would think. im merely guessing here so if any accountants know what the deal is speak up.
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Re: Housing: Own versus Rent
Old 10-30-2006, 06:33 AM   #48
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Re: Housing: Own versus Rent

I have to agree with personal circumstances/preference point of view express in
this thread earlier. I am in the middle of buying. For me it's all about freeing up
cashflow for investing purposes. I will be paying less to own (all costs factored in)
than my parents paid to rent while I was growing up. As a renter my housing
costs were approximately 25% of my income. As an owner they will be 10%. If
I were to rent the same home I am buying they would still be 25%. Landlords
seem to have a tendancy to want to profit. Seems to me that all costs associated
with owning get passed on to the renter in form of higher rent.

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Re: Housing: Own versus Rent
Old 10-30-2006, 11:14 AM   #49
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Re: Housing: Own versus Rent

Quote:
Originally Posted by Mr._johngalt
It seems to me (by using a corp.)you can get 100% deduction of all your
RE related expenses and still have your total personal deductions.
Of course, the corp. would have to conduct legit. business and keep records.
Unless I am missing something? Martha?

JG
A big problem is the business purpose. It looks like tax avoidance if you just formed a corporation to hold your home.

Then there are the things that Mathjak mentioned as if you work for the corporation, it will need to pay you a reasonable salary. And you will need to pay reasonable rent.

You would also get hit with big taxes when you sell. Isn't that why, in part, you aren't selling?

I would stay away from this strategy.




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Re: Housing: Own versus Rent
Old 10-30-2006, 11:36 AM   #50
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Re: Housing: Own versus Rent

Quote:
Originally Posted by scrubradio
...As a renter my housing costs were approximately 25% of my income. As an owner they will be 10%. If I were to rent the same home I am buying they would still be 25%...
Could you share the unique nature of your home and location? Your experience seems to be quite unique.
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Re: Housing: Own versus Rent
Old 10-30-2006, 12:06 PM   #51
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Re: Housing: Own versus Rent

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Originally Posted by kcowan
Could you share the unique nature of your home and location? Your experience seems to be quite unique.
I live in Lafayette, Indiana. Home of Purdue. Cost of renting is outrageous
the closer you are to the school. Many units rent per person and not a
solid $ amount (IE $400/person or $1,200 for 3 etc).

I was actually able to secure my home from a foreclosure below market
value. I watched the market for months in preperation and made a
move on the deal the same day it listed. Repairs were minimal. I
plan to live in the home long enough to secure my early retirement and
purchase my retirement home outright.
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Re: Housing: Own versus Rent
Old 10-30-2006, 12:39 PM   #52
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Re: Housing: Own versus Rent

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I live in Lafayette, Indiana. Home of Purdue.
Go Boilers!
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Re: Housing: Own versus Rent
Old 10-30-2006, 12:57 PM   #53
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Re: Housing: Own versus Rent

I partied for a weekend in Lafayette years ago. To put that in perspective, some bandmembers/friends we were visiting were working on a new song. "Breathe", by Pink Floyd...
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Re: Housing: Own versus Rent
Old 10-31-2006, 07:32 PM   #54
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Re: Housing: Own versus Rent

Quote:
Originally Posted by Corporateburnout
But real estate taxes as well as maintenance and repair costs increase on an annual basis too. And if you live in a condo or a townhouse your monthly fees will most likely go up annually.
I agree with you. That's why I put "partially" in the post. All you can lock in is the initial cost and interest rate (if you're borrowing). I still think that's significant enough to include it in the analysis when the rent/buy decision looks like a close call.
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