tag:blogger.com,1999:blog-3521318064826848712.post3579385575311162276..comments2023-10-19T04:51:53.516-05:00Comments on The Legal Dollar: Appreciation and the Total Cost of Buying vs. Renting - Part 4 of 4Managing Partnerhttp://www.blogger.com/profile/05130017520583425490noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-3521318064826848712.post-7437498786648604642010-02-14T21:07:26.242-06:002010-02-14T21:07:26.242-06:00nycsolo - You know, when I initially went into thi...nycsolo - You know, when I initially went into this, I was thinking more of a system for determining the price differential between renting and owning at any one specfic point in time. More along the lines of the question "How much more expensive is it to own rather than rent *right now*" as opposed to "over time." However, as we talk more about it, it is really leading to a conclusion that you have to trace the value over time if you are going to get the full impact of the economic decision - and in order to do that, I agree that you need to take the rental increases into account. I think that an additional post may be in order!Managing Partnerhttps://www.blogger.com/profile/05130017520583425490noreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-3505491105422564162010-02-14T20:59:13.256-06:002010-02-14T20:59:13.256-06:00Coder Emeritus - You are right! There can be addi...Coder Emeritus - You are right! There can be additional deductions - and the more prevalent one is probably state income tax. It looks like everyone will have to find their own value using their own specific situation.Managing Partnerhttps://www.blogger.com/profile/05130017520583425490noreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-16740026359771491102010-02-14T20:27:40.310-06:002010-02-14T20:27:40.310-06:00"Factoring in the rents going up over time wa..."Factoring in the rents going up over time was one of those things that I considered, but it started getting too complicated. For example, rents for many higher-end properties in Chicago decreased from 2003-2006 as the rental pool decreased as people bought condos. Rents are now rising again even though the economy is bad. "<br /><br />Maybe it makes the calculation more complicated but it's an important factor to weigh in favor of buying.nyc solonoreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-9046440846138719522010-02-14T20:01:02.378-06:002010-02-14T20:01:02.378-06:00I agree that you should minus out the standard ded...I agree that you should minus out the standard deduction when you factor in the mortgage interest deduction tax savings.<br /><br />At the same time, you also have to add in the other itemized deductions. For instance, if you are just taking the standard deduction, your state and local income taxes go to waste (as in, they are not deducted for federal income tax purposes). Because your mortgage interest bumps up the amount you are itemizing, now it brings a whole bunch of other itemizable (is that a word?) deductions into play. It gets complicated, of course. So yea, the mortgage interest tax deduction isn't as much as you might thing because you're giving up your standard deduction, but also isn't as little as just the mortgage interest minus standard.<br /><br />Sorry for the run-on sentences. lol.<br /><br />Have a wonderful Valentine's Day!! Happy Chinese New Year!! and have enjoy the excitement of the Snowlympics.Coder Emeritusnoreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-40587184873154927332010-02-14T17:32:38.738-06:002010-02-14T17:32:38.738-06:003:16 - Thank you very much for your comment! I ap...3:16 - Thank you very much for your comment! I appreciate your help in helping me deliver a better product. With regard to the specific items that you raise:<br />1) Tax deduction for property taxes - Excellent point and I thought I had mentioned it. The tax savings for the deductable real estate taxes and interest payments should be your actual tax savings. If your specific tax position does not give you any savings, then you are not entitled to any. For example, if you previously used the standard deduction (let's say 6K), but this year you itemize deducte 15K, then only the 9K difference is really a tax savings - and that's what you should include in your numbers.<br />2) Whoops. I actually mention it in the Financing post, but then did not take it into account in the calculation above. This actually gives me the opportunity to fix two birds with one stone - I revised the post above to include the approximately $12k standard deduction for married couples and used that to prevent the deductability of the $12K in taxes.<br />3) I don't think I agree, but I would be happy to review your reasoning. Here's why - I don't give an imputed rent credit when the buyer has 20% equity, so why should the buyer get an imputed rent credit when they own 100% equity? To put it another way, I am comparing owning cost to renting cost. If you apply an imputed rent, wouldn't that just be like subtracting the renting cost from the housing cost to arrive at a single number? You certainly would not want to include rental cost in the equation twice. <br />4) I had not seen this calculator before. It certainly seems impressive at first glance. I am going to have to research it further - thanks for linking to it!Managing Partnerhttps://www.blogger.com/profile/05130017520583425490noreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-50819867895179113212010-02-14T16:51:49.310-06:002010-02-14T16:51:49.310-06:00Hi Nycsolo - Factoring in the rents going up over ...Hi Nycsolo - Factoring in the rents going up over time was one of those things that I considered, but it started getting too complicated. For example, rents for many higher-end properties in Chicago decreased from 2003-2006 as the rental pool decreased as people bought condos. Rents are now rising again even though the economy is bad. <br /><br />As I really started to get into this, I found myself wanting to make a huge calculator program to take absolutely everything into account. For example, right now for the financing and equity costs I ignore the monthly changes. I found myself saying ok - is this going to be 1) really complicated and try to estimate all the costs over the entire lifetime of ownership, or 2) pretty decent, but could still be worked out by hand. I went with the latter.Managing Partnerhttps://www.blogger.com/profile/05130017520583425490noreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-81955437671131078102010-02-14T15:16:02.345-06:002010-02-14T15:16:02.345-06:00Hi, Good post overall, but just a couple of observ...Hi, Good post overall, but just a couple of observations.<br />1. The tax deduction for property taxes might be overstated. Remember, the taxpayer that does not itemize still gets the standard deduction (I think it's almost $6K on the '09 1040). So, any benefit of doing an itemized deduction would need to exceed the standard deduction (and, so, there might likely be no benefit at all).<br /><br />2. The interest portion of any mortgage payment is also deductible (& relatively large, but goes to 0 as the mortgage is paid off); and this would make itemizing beneficial. (I don't see any mention of this in the post.)<br /><br />3. In an all-cash purchase, the example charges the buyer the equity cost for those funds used to make the purchase. But, to be fair, the buyer should then be able to save (or get credit for) the imputed rent for similar housing, compounding at xx% (6%) year after year. This factor would greatly lower the cost of home ownership when there is no mortgage.<br /><br />For the most thorough "Rent v. Buy" analysis I've ever seen, check out the link below. It even considers start-up initial repairs and the $8K new home buyer tax credit.<br />http://michaelbluejay.com/house/rentvsbuy.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3521318064826848712.post-78067213724753557772010-02-11T22:22:53.326-06:002010-02-11T22:22:53.326-06:00Do your examples take into account the fact that r...Do your examples take into account the fact that rents tend to go up over time, sometimes dramatically?<br /><br />When I bought a house 8 or 9 years ago, my landlord had started jacking up my rent and it was very attractive to me that my monthly payment was locked in.nycsolonoreply@blogger.com