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Home › Forums › Housing › Advice needed on mobile home purchase – right choice for first time buyer? › The tax laws in this country

March 7, 2006 at 5:19 PM #23598
4plexowner
Participant

The tax laws in this country are written for business owners. W-2 wage earners take it in the shorts when it comes to taxes.

Yes, real estate is one of the few ways for a W-2 wage earner to reduce his taxes.

I think we are still failing to communicate here. My point is that NO MATTER how much taxes your friend ‘saves’ because of mortgage interest deductions, he is only ‘saving’ this money because HE HAS TAKEN MONEY OUT OF HIS POCKET AND GIVEN IT TO THE BANK IN THE FORM OF INTEREST. This interest money is real income that your friend had to earn so he could give it to the bank. The bank is never going to give this money back – it is gone for good.

Your friend will get a 35% (max) offset (from the IRS in the form of tax savings) from this out-of-pocket expense BUT HE IS STILL OUT THE MONEY HE SPENT ON INTEREST. So does he have more money or less money at the end of the year? (Hint: the answer is “less”)

Now, there are other benefits to owning real estate. If it makes sense for your friend to buy vs rent then the tax savings offset the expense of owning. In my opinion, however, the tax ‘savings’ by themselves do not justify buying real estate.

And in particular, in a market where real estate values are likely to decline by 40-50% in the next 5 years, why would anyone buy ANY real estate much less a mobile home?

I am also a high-income, single, W-2 wage earner. When I first started buying property I thought there would be significant tax bennies. My experience with 6 multi-unit properties has taught me that the tax bennies of owning real estate are limitted at best and certainly don’t justify the purchase if that is the only reason the purchase is being made.

My financial advice: remain (or become) a renter, pay down debts, buy silver and gold bullion and kick back for the next few years. Let the real estate market correct while some of the geo-political crises resolve themselves (one way or the other). I believe we are currently at a point in history where being liquid and mobile is the ideal financial state. That’s one of the reasons I sold 5 of my properties. Real estate is neither liquid (especially in a declining market) or mobile.