Rent vs. Buy

[patientlywaiting]

Rustico,

My parents house is 20 years old. They bought it brand new and never had termite work of any kind. Do you think that an inspection/tenting is needed every so often? He just asked me about it the other day.
There’s some sandy thing (termite droppings?) on the concret patio at the base of the slab.

Thanks.

[temeculaguy]

Neeta, the part you are overlooking is the income tax benefit. All our tax situations are different so I’ll use a generic one. Lets say you earn more than 80k a year, that 1000 a month in interest you are earning lands in top of your bracket so lets average it at about 30%, so you are left with 700 actual income. Then the property taxes you would pay would knock off income at the top of your bracket so a third of it would come back to you, lets say another 80 a month. Since the difference was 370 and tax wise you benefit 380, you are $10 to the good and you wont have any rent increases and can benefit from appreciation. So the real bet is on the appreciation, don’t feel bad either way, all investing is like a casino, where do want to place your bet. Right now the odds are against apreciation and in favor of depreciation so you are now in the same boat as the rest of us reverse flippers, timing your exit from the rental world and trying to predict the future. The disparity doesn’t get that much bigger with a mortgage because of the tax offset however 1200 rent for a 300k property is fundamentally still in favor of renting. 2000 rent on a 300k buy is the break even point in my book, so be thankful you are you and not me because my 2k rental can be had for 280k and I’m still not jumping.

P.S. you were very conservative with your interest estimates so I was equally as conservative with my tax estimates, both are likely to be higher and the only way to truly know is to run scenarios with your money on some tax software.

[temeculaguy]

Neeta, the part you are overlooking is the income tax benefit. All our tax situations are different so I’ll use a generic one. Lets say you earn more than 80k a year, that 1000 a month in interest you are earning lands in top of your bracket so lets average it at about 30%, so you are left with 700 actual income. Then the property taxes you would pay would knock off income at the top of your bracket so a third of it would come back to you, lets say another 80 a month. Since the difference was 370 and tax wise you benefit 380, you are $10 to the good and you wont have any rent increases and can benefit from appreciation. So the real bet is on the appreciation, don’t feel bad either way, all investing is like a casino, where do want to place your bet. Right now the odds are against apreciation and in favor of depreciation so you are now in the same boat as the rest of us reverse flippers, timing your exit from the rental world and trying to predict the future. The disparity doesn’t get that much bigger with a mortgage because of the tax offset however 1200 rent for a 300k property is fundamentally still in favor of renting. 2000 rent on a 300k buy is the break even point in my book, so be thankful you are you and not me because my 2k rental can be had for 280k and I’m still not jumping.

P.S. you were very conservative with your interest estimates so I was equally as conservative with my tax estimates, both are likely to be higher and the only way to truly know is to run scenarios with your money on some tax software.

[temeculaguy]

Neeta, the part you are overlooking is the income tax benefit. All our tax situations are different so I’ll use a generic one. Lets say you earn more than 80k a year, that 1000 a month in interest you are earning lands in top of your bracket so lets average it at about 30%, so you are left with 700 actual income. Then the property taxes you would pay would knock off income at the top of your bracket so a third of it would come back to you, lets say another 80 a month. Since the difference was 370 and tax wise you benefit 380, you are $10 to the good and you wont have any rent increases and can benefit from appreciation. So the real bet is on the appreciation, don’t feel bad either way, all investing is like a casino, where do want to place your bet. Right now the odds are against apreciation and in favor of depreciation so you are now in the same boat as the rest of us reverse flippers, timing your exit from the rental world and trying to predict the future. The disparity doesn’t get that much bigger with a mortgage because of the tax offset however 1200 rent for a 300k property is fundamentally still in favor of renting. 2000 rent on a 300k buy is the break even point in my book, so be thankful you are you and not me because my 2k rental can be had for 280k and I’m still not jumping.

P.S. you were very conservative with your interest estimates so I was equally as conservative with my tax estimates, both are likely to be higher and the only way to truly know is to run scenarios with your money on some tax software.

[temeculaguy]

Neeta, the part you are overlooking is the income tax benefit. All our tax situations are different so I’ll use a generic one. Lets say you earn more than 80k a year, that 1000 a month in interest you are earning lands in top of your bracket so lets average it at about 30%, so you are left with 700 actual income. Then the property taxes you would pay would knock off income at the top of your bracket so a third of it would come back to you, lets say another 80 a month. Since the difference was 370 and tax wise you benefit 380, you are $10 to the good and you wont have any rent increases and can benefit from appreciation. So the real bet is on the appreciation, don’t feel bad either way, all investing is like a casino, where do want to place your bet. Right now the odds are against apreciation and in favor of depreciation so you are now in the same boat as the rest of us reverse flippers, timing your exit from the rental world and trying to predict the future. The disparity doesn’t get that much bigger with a mortgage because of the tax offset however 1200 rent for a 300k property is fundamentally still in favor of renting. 2000 rent on a 300k buy is the break even point in my book, so be thankful you are you and not me because my 2k rental can be had for 280k and I’m still not jumping.

P.S. you were very conservative with your interest estimates so I was equally as conservative with my tax estimates, both are likely to be higher and the only way to truly know is to run scenarios with your money on some tax software.

[temeculaguy]

Neeta, the part you are overlooking is the income tax benefit. All our tax situations are different so I’ll use a generic one. Lets say you earn more than 80k a year, that 1000 a month in interest you are earning lands in top of your bracket so lets average it at about 30%, so you are left with 700 actual income. Then the property taxes you would pay would knock off income at the top of your bracket so a third of it would come back to you, lets say another 80 a month. Since the difference was 370 and tax wise you benefit 380, you are $10 to the good and you wont have any rent increases and can benefit from appreciation. So the real bet is on the appreciation, don’t feel bad either way, all investing is like a casino, where do want to place your bet. Right now the odds are against apreciation and in favor of depreciation so you are now in the same boat as the rest of us reverse flippers, timing your exit from the rental world and trying to predict the future. The disparity doesn’t get that much bigger with a mortgage because of the tax offset however 1200 rent for a 300k property is fundamentally still in favor of renting. 2000 rent on a 300k buy is the break even point in my book, so be thankful you are you and not me because my 2k rental can be had for 280k and I’m still not jumping.

P.S. you were very conservative with your interest estimates so I was equally as conservative with my tax estimates, both are likely to be higher and the only way to truly know is to run scenarios with your money on some tax software.

[NotCranky]

I do think treatment makes some sense. I am more up on the construction and real estate related issues than prevention.

There are evidently two types of termites or perhaps it is two different life stages of the same critter. In any case, there is the subterranean type, these live in the mud and crawl up the walls to eat the studs and those that fly into the attic and such places and enter unpainted or poorly maintained trim areas, under roof shingles etc. Sounds like you might have the subterranean type at the patio. You want to kill them for sure. I have poured bleach in the nests and any accessible areas and believe to have set them back a little that way. I think, but am not sure, that with the nest destroyed the guys left in the wall die.

It might not be a bad idea to have your parents get a couple of inspections, w/o tipping off the termite co’s chosen, that you are getting more than one inspection .Unfortunately, the public, including myself, is at a bit of a disadvantage when it comes to dealing with termite companies. The inspectors evidently have x-ray vision and can see dollars in the walls. Kind of kidding, you just have to watch what they are doing and ask for complete explanations.

[NotCranky]

I do think treatment makes some sense. I am more up on the construction and real estate related issues than prevention.

There are evidently two types of termites or perhaps it is two different life stages of the same critter. In any case, there is the subterranean type, these live in the mud and crawl up the walls to eat the studs and those that fly into the attic and such places and enter unpainted or poorly maintained trim areas, under roof shingles etc. Sounds like you might have the subterranean type at the patio. You want to kill them for sure. I have poured bleach in the nests and any accessible areas and believe to have set them back a little that way. I think, but am not sure, that with the nest destroyed the guys left in the wall die.

It might not be a bad idea to have your parents get a couple of inspections, w/o tipping off the termite co’s chosen, that you are getting more than one inspection .Unfortunately, the public, including myself, is at a bit of a disadvantage when it comes to dealing with termite companies. The inspectors evidently have x-ray vision and can see dollars in the walls. Kind of kidding, you just have to watch what they are doing and ask for complete explanations.

[NotCranky]

I do think treatment makes some sense. I am more up on the construction and real estate related issues than prevention.

There are evidently two types of termites or perhaps it is two different life stages of the same critter. In any case, there is the subterranean type, these live in the mud and crawl up the walls to eat the studs and those that fly into the attic and such places and enter unpainted or poorly maintained trim areas, under roof shingles etc. Sounds like you might have the subterranean type at the patio. You want to kill them for sure. I have poured bleach in the nests and any accessible areas and believe to have set them back a little that way. I think, but am not sure, that with the nest destroyed the guys left in the wall die.

It might not be a bad idea to have your parents get a couple of inspections, w/o tipping off the termite co’s chosen, that you are getting more than one inspection .Unfortunately, the public, including myself, is at a bit of a disadvantage when it comes to dealing with termite companies. The inspectors evidently have x-ray vision and can see dollars in the walls. Kind of kidding, you just have to watch what they are doing and ask for complete explanations.

[NotCranky]

I do think treatment makes some sense. I am more up on the construction and real estate related issues than prevention.

There are evidently two types of termites or perhaps it is two different life stages of the same critter. In any case, there is the subterranean type, these live in the mud and crawl up the walls to eat the studs and those that fly into the attic and such places and enter unpainted or poorly maintained trim areas, under roof shingles etc. Sounds like you might have the subterranean type at the patio. You want to kill them for sure. I have poured bleach in the nests and any accessible areas and believe to have set them back a little that way. I think, but am not sure, that with the nest destroyed the guys left in the wall die.

It might not be a bad idea to have your parents get a couple of inspections, w/o tipping off the termite co’s chosen, that you are getting more than one inspection .Unfortunately, the public, including myself, is at a bit of a disadvantage when it comes to dealing with termite companies. The inspectors evidently have x-ray vision and can see dollars in the walls. Kind of kidding, you just have to watch what they are doing and ask for complete explanations.

[NotCranky]

I do think treatment makes some sense. I am more up on the construction and real estate related issues than prevention.

There are evidently two types of termites or perhaps it is two different life stages of the same critter. In any case, there is the subterranean type, these live in the mud and crawl up the walls to eat the studs and those that fly into the attic and such places and enter unpainted or poorly maintained trim areas, under roof shingles etc. Sounds like you might have the subterranean type at the patio. You want to kill them for sure. I have poured bleach in the nests and any accessible areas and believe to have set them back a little that way. I think, but am not sure, that with the nest destroyed the guys left in the wall die.

It might not be a bad idea to have your parents get a couple of inspections, w/o tipping off the termite co’s chosen, that you are getting more than one inspection .Unfortunately, the public, including myself, is at a bit of a disadvantage when it comes to dealing with termite companies. The inspectors evidently have x-ray vision and can see dollars in the walls. Kind of kidding, you just have to watch what they are doing and ask for complete explanations.

[Anonymous]

Thanks for the info on termites, that makes me feel somewhat better about what I may find out. As for emotional connection, a little, that’s another reason I’m asking for input. I think the depreciation is the big issue as well and I don’t want to be stuck with all that depreciation myself. For now, I will wait for the home inspector/structural engineer to take a look at it before I will make a decision. My siblings say they want to try to sell it “as is” in this market, I don’t think we can sell it “as is” in this market without a deep discount which makes me think maybe I should buy it. I have to pay rent anyway. I seem to keep thinking in circles. I really do thank you for your input. When I get more information I will have a clearer idea which direction to go. I have to check into the Prop 13 tax basis transfer too. See if there might be a potential property tax savings if I buy. I have been reading (and learning) from this forum for some time now and believe me when I say I can’t believe I’m even thinking about buying. I guess I’m just waiting for someone to tell me I’m crazy.

[Anonymous]

Thanks for the info on termites, that makes me feel somewhat better about what I may find out. As for emotional connection, a little, that’s another reason I’m asking for input. I think the depreciation is the big issue as well and I don’t want to be stuck with all that depreciation myself. For now, I will wait for the home inspector/structural engineer to take a look at it before I will make a decision. My siblings say they want to try to sell it “as is” in this market, I don’t think we can sell it “as is” in this market without a deep discount which makes me think maybe I should buy it. I have to pay rent anyway. I seem to keep thinking in circles. I really do thank you for your input. When I get more information I will have a clearer idea which direction to go. I have to check into the Prop 13 tax basis transfer too. See if there might be a potential property tax savings if I buy. I have been reading (and learning) from this forum for some time now and believe me when I say I can’t believe I’m even thinking about buying. I guess I’m just waiting for someone to tell me I’m crazy.

[Anonymous]

Thanks for the info on termites, that makes me feel somewhat better about what I may find out. As for emotional connection, a little, that’s another reason I’m asking for input. I think the depreciation is the big issue as well and I don’t want to be stuck with all that depreciation myself. For now, I will wait for the home inspector/structural engineer to take a look at it before I will make a decision. My siblings say they want to try to sell it “as is” in this market, I don’t think we can sell it “as is” in this market without a deep discount which makes me think maybe I should buy it. I have to pay rent anyway. I seem to keep thinking in circles. I really do thank you for your input. When I get more information I will have a clearer idea which direction to go. I have to check into the Prop 13 tax basis transfer too. See if there might be a potential property tax savings if I buy. I have been reading (and learning) from this forum for some time now and believe me when I say I can’t believe I’m even thinking about buying. I guess I’m just waiting for someone to tell me I’m crazy.

[Anonymous]

Thanks for the info on termites, that makes me feel somewhat better about what I may find out. As for emotional connection, a little, that’s another reason I’m asking for input. I think the depreciation is the big issue as well and I don’t want to be stuck with all that depreciation myself. For now, I will wait for the home inspector/structural engineer to take a look at it before I will make a decision. My siblings say they want to try to sell it “as is” in this market, I don’t think we can sell it “as is” in this market without a deep discount which makes me think maybe I should buy it. I have to pay rent anyway. I seem to keep thinking in circles. I really do thank you for your input. When I get more information I will have a clearer idea which direction to go. I have to check into the Prop 13 tax basis transfer too. See if there might be a potential property tax savings if I buy. I have been reading (and learning) from this forum for some time now and believe me when I say I can’t believe I’m even thinking about buying. I guess I’m just waiting for someone to tell me I’m crazy.

[Author]

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