nightdesigns
Gone missing, back soon
Premium
join:2002-05-31
AZ
 ·Cox HSI
| Homeowners: Mortgage Interest, Property Tax & Uncle Sam
We're starting to look at the housing market for our first place and we're now sorting through the finance area. From what I've been told and can find, thanks to the government we would be entitled to taking a tax deduction on the interest paid and on property taxes. According to my loan officer it's 90% of monthly mortgage.
Now for the real-life. Since we're all socalians, what is the actual return? Would I actually see a significant return every year, or is it not something to count on?
Thanks.
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No_Strings
Premium,Mod
join:2001-11-22
The OC
Host:
Wireless Networking
All Things Unix
Cox HSI
Qwest
Efficient
| The deduction is certainly real. How much it helps depends on your income, other deductions and that most evil of all taxes - the Alternative Minimum Tax. The more you make, the less your deductions count. You don't have to earn a lot to trip that bad boy (trust me) and it will offset much of your benefit. |
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Jtmo
Premium
join:2001-05-20
Novato, CA
·Comcast
| reply to nightdesigns
It depends on your tax bracket brackets, where you are.
Google 2007 tax table for the IRS tables, CA will be 5-11% depending on income.
Part of car registration based on valuation, interest on the house, second home (or RV), all deductions from income, property taxes, which can put you in a lower tax bracket. That's the 'savings' a lower tax rate.
Say you were in a 33% bracket (max is 38), and you deduct standard per person deduction, plus all interest/property tax etc= some number, now you might be in a 15% bracket, saving 18% of the money over say $42,900 a year that you make.
Clear as mud? |
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dogma
Premium
join:2002-08-15
Boulder City, NV
| reply to nightdesigns
said by nightdesigns  :We're starting to look at the housing market for our first place... All I can say is wait. Give it 12 Months at least. |
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goddfather40
join:2000-12-16
Aliso Viejo, CA | reply to nightdesigns
I'll just say that I make $50K-$100K a year and I own a condo with a $380,000 loan on it. My tax refund was about 7K. I claim '1' on my W-4. |
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coxta
Ultramundane
Premium
join:2000-07-15
LALALALALALA
 ·Pacific Bell - SBC
| reply to nightdesigns
If you don't amortize the points over the life of the loan, they are deductible the first year in full. The interest is deductible, and taxes are deductible. I couldn't say whether or not you would get a refund. I never have. I don't think owning a home is a great deal, tax-wise, there is some subsidy by the government, but it's not as much you most make it out to be. The benefit is having some control over your life by having some autonomy and by building equity. It can be either a place of your own, or an investment.
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Experience is the knowledge that enables you to recognize a mistake when you make it again. |
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sholling
Premium
join:2002-02-13
Hemet, CA
| reply to dogma
I'm going to partly agree with Dogma, but only partly. If you're looking for a short-term (less than 5 years) investment then you need to run the numbers see how the possibility of a 5% drop in value (I don't think it will be that bad), plus the 6% it will cost you to sell compares to the straight out loss of a year of a year or two of rent. I doubt they results will be pretty even after you factor in the tax advantage of owning.
But at the same time you should be looking hard for bargains. Distress sales, panic sales etc, while avoiding any temtation to explore creative financing.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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coxta
Ultramundane
Premium
join:2000-07-15
LALALALALALA
·Pacific Bell - SBC
| reply to nightdesigns
In the stocks vs real estate returns, stocks have always won, hands down. For a five year investment, stocks will probably win out too. I agree, look for a good deal. Perhaps a fixer-upper, if your handy. You could get paid for appreciation, equity building and for your labor. In the short run, if you do it yourself, you just make a profit on labor. A home that is just updated, doesn't really gain much in value and in fact the investment in the updates are a loss of a few percent.
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Experience is the knowledge that enables you to recognize a mistake when you make it again. |
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jig
join:2001-01-05
Hacienda Heights, CA
| said by coxta :In the stocks vs real estate returns, stocks have always won, hands down. For a five year investment, stocks will probably win out too. that's not true. you can only come to that conclusion by looking at a very superficial market value while neglecting other real, tangible economic benefits. not to mention that most of the growth stocks don't offer dividends so your risk stays high. further, if you leverage your way in with stocks you run a huge economic risk, but with real estate you have a much more secure safety net, and at least one way to generate wealth is to manage debt safely and productively.
the only problem with real property is that it takes a reasonably large stake to get in.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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Lovehound
join:2005-08-18
Northridge, CA
| reply to sholling
said by sholling :I'm going to partly agree with Dogma, but only partly. If you're looking for a short-term (less than 5 years) investment then you need to run the numbers see how the possibility of a 5% drop in value (I don't think it will be that bad), plus the 6% it will cost you to sell compares to the straight out loss of a year of a year or two of rent. I doubt they results will be pretty even after you factor in the tax advantage of owning. But at the same time you should be looking hard for bargains. Distress sales, panic sales etc, while avoiding any temtation to explore creative financing. This is really good advice. However, I'd qualify that less than 5 years probably won't make financial sense. Considering a possible price decline, renting makes more sense in that time frame. Beyond 5 years, buying a home is probably still a good investment.
Regarding the down payment, the old (and sage) advice is to go 20 percent down. This will also give you full control of your insurance payments and property taxes, although perhaps in recent times they may have loosened those requirements. Of course you'll have to mind your business about paying the insurance and taxes, but at least you're in the catbird seat.
So look hard for bargains, plan on living there 5 years (minimum), and put 20 percent down payment. It may sound like hard advice but it's good advice. |
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sholling
Premium
join:2002-02-13
Hemet, CA
| said by Lovehound : I'd qualify that less than 5 years probably won't make financial sense. Considering a possible price decline, renting makes more sense in that time frame. Beyond 5 years, buying a home is probably still a good investment. That was my point about less than 5 year timeframes, but I think you put it more clearly. The exception is when one finds a distress or panic sale. This is where spreadsheets come in handy. Run the numbers.
Regarding the down payment, the old (and sage) advice is to go 20 percent down. This will also give you full control of your insurance payments and property taxes, although perhaps in recent times they may have loosened those requirements. Of course you'll have to mind your business about paying the insurance and taxes, but at least you're in the catbird seat. You're dating yourself my friend.  In the good old days of our youth 20% was around $20k give or take. Today 20% is $80-120k. Almost impossible for first time home buyers to save while laying out $1000/mo in rent. The only penalty for a 5% FHA or GI loan is that you pay for morgage insurance (PMI) every month, and it's not all that expensive. They also protect you from stupidly creative financing and from signing contracts with prepayment penelties.
So look hard for bargains, plan on living there 5 years (minimum), Great advice. The best part about buying a home isn't the hoped for increase in value. That just gets eaten up when one upgrades. The best part is 30 years from now when you've got it paid off - is that it's paid off.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--
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coxta
Ultramundane
Premium
join:2000-07-15
LALALALALALA
·Pacific Bell - SBC
| reply to nightdesigns
If you look at long term valuation of real estate vs the stock market, it's clear that the stock market not only keeps up with inflation but surpasses it. Real estate, however tempting does not have the save investment potential.
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Experience is the knowledge that enables you to recognize a mistake when you make it again. |
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jig
join:2001-01-05
Hacienda Heights, CA
1 edit | like i said earlier, most of the stocks that make up those indexes don't pay you dividends. so, even if you choose correctly on the stock side, the most you have is the value of the stock.
if you invest in the real estate, you (can) get recurring income and tax breaks on the mere owning of the property.
oh, and you can't buy insurance to cover losses in stocks... |
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coxta
Ultramundane
Premium
join:2000-07-15
LALALALALALA
·Pacific Bell - SBC
| reply to nightdesigns
Cash isn't an ideal investment scheme, you want wealth. Wealth is a material or resource. With stocks, you can sell some off and purchase newer investments that will increase in value. Real estate isn't a bad investment, it's just more problematic. You can buy insurance, but it only covers some of the cost of reimbursement. Maintenance is continual, it only earns a dividend if you have tenants, it has to be managed and if you don't manage it yourself, then you pay a good portion of that income to someone else manage it.
Stocks are portable and you can control them remotely very easily; you can get in and out; you can take a trip for a year and not worry about your investment vehicle. It's more like gambling, but if you set parameters to follow, then you can hedge your bets. Overall, the net value of stocks increases more than real estate.
There are times to be invested in real estate and you should be invested in stocks and bonds all the time. Real estate has it's own unique business cycle. I've had a lot of friends whose families initially invested in real estate and they eventually sold off most of the holdings to buy stocks. It's just so much easier and the gain was better.
There are a few real estate investments that can potentially be ideal, such as owning a piece of property and having a long term lease. One of my friends families owns land that some McDonald's sit on. Now that, is just a pretty stable investment and return, but it's more serendipity than plan.
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Experience is the knowledge that enables you to recognize a mistake when you make it again. |
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jig
join:2001-01-05
Hacienda Heights, CA
| said by coxta :Cash isn't an ideal investment scheme, you want wealth. Wealth is a material or resource. With stocks, you can sell some off and purchase newer investments that will increase in value. Real estate isn't a bad investment, it's just more problematic. You can buy insurance, but it only covers some of the cost of reimbursement. Maintenance is continual, it only earns a dividend if you have tenants, it has to be managed and if you don't manage it yourself, then you pay a good portion of that income to someone else manage it. Stocks are portable and you can control them remotely very easily; you can get in and out; you can take a trip for a year and not worry about your investment vehicle. It's more like gambling, but if you set parameters to follow, then you can hedge your bets. Overall, the net value of stocks increases more than real estate. wealth is not stocks, they are as close to cash as anything can possibly be. and the insurance doesn't cover "some", it covers "most", management doesn't cost a "good portion", and maintenance is deductible.
stocks are volatile, or, if you are in a mutual fund, you don't make the "value" of the stock and have to continually pay fees and taxes that bring you down below the "net" value of owning a rental property.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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sholling
Premium
join:2002-02-13
Hemet, CA | You also can't sleep in stock. |
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jig
join:2001-01-05
Hacienda Heights, CA | (presumably, you wouldn't sleep in an investment property either, you'd want someone else to) |
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Bloominite
Premium
join:2004-04-17
clubs:
·DSL EXTREME
| said by jig :(presumably, you wouldn't sleep in an investment property either, you'd want someone else to) You could be banging the tenant. |
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coxta
Ultramundane
Premium
join:2000-07-15
LALALALALALA
·Pacific Bell - SBC
1 edit | reply to nightdesigns
Actually stocks are wealth. You own a portion of a company and there are corresponding certificates that validate the ownership. Fund deposited in a bank aren't true wealth, since the bank holds the investment vehicles, but there is minimal coverage in the form of FDIC.
If you own a home, the value appreciates, but your money is tied to your home and is only available with a refinance or equity loan, but it is a loan and you continue to pay. Rental property can be income generating, but it requires more work and constant surveillance. If you really want income property, think of a REIT.
As I mentioned before, there is a business cycle and a real estate cycle. If you look at investment as a hedge against inflation, equities provide a historically more predictable and constant return that surpasses real estate.
Here is another way to think about it. What causes a home price to increase? Inflation. There is no change in the home, just the underlying value of the land. In reality, there is plenty of land. Investing in a company is true growth. Products and services are increased and they increase over inflation. Price increases in real estate are like price increases in milk. It's purely inflation.
Rhetoric versus fact? If you have no data, you just have an opinion.
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»infoproc.blogspot.com/2005/08/eq···ate.html
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Experience is the knowledge that enables you to recognize a mistake when you make it again. |
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jig
join:2001-01-05
Hacienda Heights, CA
| inflation is not the reason why home prices go up, it's demand. the same thing with milk. and, generally, the same thing with stocks.
and i guess i'll say it one last time, every single graph/statistic/data that i've seen does not compare apples to apples when comparing the value of real estate to the value of, for instance, the dow. every single one is just comparing the sale price, and misses out on a much better number, ROI. even the graphs that SAY they are comparing ROI always just compare the DOW and/or the s&p. it's idiotic.
i'm sure there is a home grown index that's entirely made up of stocks that give dividends. comparing that, and the dividend payments, to the value of a house AND it's earning potential, would be an interesting graph.
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A man compounded of law and gospel is able to cheat a whole country with his religion and then destroy them under color of law. -Ben Franklin |
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