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(former)FormerSanDiegan
ParticipantI haven’t run the numbers but I would expect to have seen a pretty similar spread between renting and owning when I first bought in ’91 if all this crazy creative financing was available back then.
DaCounselor – I showed the actual numbers comparing 2001 to today above, not 1991. However, I would agree that comparisons of rent versus own were likely very similar between about 1990 and today. (I think I saw a graphic on this board once that actually supports this notion. I’ll try to find it.)
Regarding the 50% discount before tax considerations …
As I said, the after-tax consequences can result in renting costing anywhere between 50% of buying and 85% of buying, depending on individual tax circumstances
Example 1: Married couple making 75K per year, with a 200K loan (e.g. 250K condo). Their total interest might be about 13K in the first year, prop tax at 3K for a total of 16K. Thats only 6K more than they get for a standard deduction. If their marginal tax bracket is Fed= 25%, state =6% they get a benefit of owning of $1860 per year .Example 2: Married couple makes 250K per year, with a 800K loan on a $1Mil house. Their total interest is 52k, prop tax is 12,500. Total deductions are 64,500. Well above the 10K standard deduction. Plus they are in a higher tax bracket, say a marginal rate of Fed=33%, State = 9.3%. Their tax benefit relative to standard deduction is: (54,500*0.423) about 23k per year .
The couple with the 4x more expensive place have a 12x larger benefit from owning. In this case, the relative cost of renting versus owning might be as high as 90%.In fact, for higher income folks, a mortgage of up to $1 Mil may even keep them from being subject to AMT. Because a Primary mortgage is still deductible under AMT (but property taxes are not).
Because of the non-linearity of the tax code, it is impossible to cite a single number for after tax cost of renting versus owning.
ParticipantHappy renter makes a good point. Check into whether you have “A”, “B” or “C” funds each has their own load schedule. Some are front end loaded (you pay a sales charge on purchase), some are back-end loaded (You pay a sales charge upon selling).
ParticipantWhile I think FutureSDguy is right about the fact that people can close their web browser… I believe that calling out people to simply close their web browser when they want to belittle others for expressing polarizing views is worse than belittling others for expressing their views.
ParticipantYes, moves inside a 401K between investments have no tax consequences. However, you may have to pay fees, loads, or commissions.
ParticipantIs the SD rental discount from owning really 50%? Is that pre-tax or post-tax deduction? Is a 50% rental discount from owning way out of whack with historical figures?
Recently it has been about 50% cheaper to rent than own. SFR’s have been grossing about 4% of the price of the home.
Example: 500 K home in Clairemont, rents for about $1700 per month. 1700 x 12 = 20,400. 20,400/500,000 = 4.1%.Assuming that carrying costs on a purchase total up to about 8% (6.5% loan, 1.2% Taxes, Insurance, Maintenance). Then the number is about half the cost of owning. Taxing tax consequences into account, renting can be anywhere between 50% to 85% the cost of owning (depends heavily on the person’s tax situation).
In 2001 I sold a rental in Clairemont for 280K. The rent at that time was about 1300/month. The gross rent in that case was about 5.6%. That’s about 40% more than the 4% number I would assume for today, and is consistent with Rich’s analysis.
SO, to answer your questions:
Yes, the discount from owning is about 50% before tax. And yes it is out of whack with recent history.ParticipantI’d like to bring this back around to something analytical and avoid name calling. Here’s how we can easily bring our carbon footprint to Zero and be like Al Gore.
Assumption:
Al uses 20x the average households energy, but buys back carbon credits for about $8,280 per year. Net carbon footprint = ZERO. He’s a hero.Solution:
Let’s have all those average homeowners follow suit and purchase enough carbon credits to bring their footprint to zero. This comes to $8280/20 = $414. For a measly $414 per year for the average household we can all be carbon neutral like Al Gore. Then we are all heroes. Does this solve the problem ?Now I can leave the TV on 24 hours a day and just buy another $20 in credits per year to cover it. Cool. I love this energy conservation thing.
ParticipantOne more thing to ponder for all those nut jobs out there. This might be a good time to apply the principle of Occam’s Razor, which is roughly that “All things being equal, the simplest solution tends to be the best one.”
Case 1 – In a chaotic situation following a terrorist attack someone told someone else that they are evacuating a building in case it collapses, that person told someone else that they had to evacuate because the building had collapsed and that person told a reporter that the building had collapsed, in a classic conversation-chain.
OR
Case 2 – The US government orchestrates a phantom terrorist attack on the WTC buildings. A smaller nearby building is the target of a fourth aircraft that is accidentally taken down in Pennsylvania (possibly by a branch of the military that didn’t get the conspiracy memo). To make the thing seem more real, they use actual jet aircrafts on the WTC buildings and some other small projectile at the Pentagon, but claim that it too is a jet. Each of the WTC buildings involved were equipped with explosive devices to enable them to be imploded on cue, since they would no collapse on their own under the faked attack. A secret part of the government plans to release information to the BBC at exactly 4:57pm to let them announce that WTC7 has collapsed. They do this just in case nobody notices that the building falls down when they implode it. The government employee in charge of this release accidentally gives the information to the BBC before the building is actually imploded.
ParticipantI really love threads like this.
It allows us a glimpse at the inner workings and perspective of people in matters other than economics. That way we can effectively evaluate their opinions on real estate and economic matters and understanding how their minds work, discount them appropriately.
ParticipantThe problem is CharlieG, that housing is too expensive. Even if you could get that house for 350k. It still represents such a large chunk of your earnings you are forced into thinking of it as an investment.
I didn’t see where CharlieG says how much he makes. 350K may be less than 2x his income for all we know.
ParticipantIn other news…
Greenspan is an alien.[img_assist|nid=2249|title=Alien or Not ? You be the judge.|desc=|link=node|align=left|width=466|height=349]
It must be true, I read it on the web from a reporter named Steven LaTulippe
http://www.lewrockwell.com/latulippe/latulippe12.htmlFebruary 28, 2007 at 10:29 AM in reply to: 100 sales to 1 buy yesterday, npw they’ve changed their minds.. WTF? #46496ParticipantHuh ?
Who bought the other 99 stocks that were sold if there was only one stock purchased ?
I might need to check into this new math thing, but I think that the number of stock shares sold and the number of stock shares purchased were equal.
Participantibjames –
I agree: doctors, dentists and orthodontists are all in category #3.
This reminds me of something my dentist told me in 1996. He said that he was pondering selling his Mission Hills home, live on a boat for 5 years, then come back and buy his house for cash with the money he saved.
ParticipantIn a Scripps Howard poll in July 2006 36% of respondents said it is “very likely” or “somewhat likely” that federal officials either participated in the attacks on the World Trade Center and the Pentagon or took no action to stop them.”
In comparison, the same Scripps poll found that 38% of Americans think the “federal government is withholding proof of the existence of intelligent life from others planets”
ParticipantPerryChase was right. Rich people are different.
Us regular people need to switch from driving our F350 extended cab pick-ups and start driving Prius’ … to compensate for rich people’s energy use.P.S. – This is not just a liberal issue. All politicians are hypocrites.
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