| Author |
Message |
SD
Guest
|
 Posted:
Sat Sep 24, 2005 12:02 am Post subject:
Re: buy a house? |
|
|
Jim wrote:
| Quote: | "SD" <siddharthgdalal@COLDmail.com> wrote
Over what period of time?
It doesn't matter. My point was that nothing stays the same. Nothing is
fixed.
"However the calculation may not be as simple. How much does rent go up
every year? Mortgage payments will remain constant...."
No, they won't.
|
Point noted. So now we have mortgage payments hopefully increasing
*less* than rent payments. Atleast as David pointed out in 30 or 15 or
20 or some n muber of years they will end.
|
|
| Back to top |
|
 |
Mark Freeland
Guest
|
| Posted:
Sat Sep 24, 2005 12:02 am Post subject:
Re: buy a house? |
|
|
"David Wilkinson" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:dh1kc1$cjb$1@newsg1.svr.pol.co.uk...
| Quote: | e) I think that in the US you even get tax breaks on the payments,
although these have been discontinued in the UK.
|
The interest portion of the payments are deductible from income, under some
fairly broad conditions (first or second home, only up to $1M in debt, not
to exceed fair market value).
http://www.finance.cch.com/text/c60s10d282.asp
When did the UK discontinue deductions? More importantly, what sort of
impact did it have on housing prices?
--
Mark Freeland
nNeEwTs@sonic.net |
|
| Back to top |
|
|
David Wilkinson
Guest
|
| Posted:
Sat Sep 24, 2005 12:02 am Post subject:
Re: buy a house? |
|
|
Mark Freeland wrote:
| Quote: | "David Wilkinson" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:dh1kc1$cjb$1@newsg1.svr.pol.co.uk...
e) I think that in the US you even get tax breaks on the payments,
although these have been discontinued in the UK.
The interest portion of the payments are deductible from income, under some
fairly broad conditions (first or second home, only up to $1M in debt, not
to exceed fair market value).
http://www.finance.cch.com/text/c60s10d282.asp
When did the UK discontinue deductions? More importantly, what sort of
impact did it have on housing prices?
I am not sure of the dates, but tax relief on mortgage interest was |
reduced over a period and was completely gone about 10 years ago, I
think, but don't hold me to it! It used to be that you got tax relief on
the interest at your marginal tax rate, which is 40% if you have a
middle class or above income. Then it dropped to the standard rate of
20%. Then it was reduced to 10% and then it was deleted altogether.
It is only hypothetical to guess what its effect was as we did not have
any parallel cases with and without tax relief, but as it made mortgage
payments less and reduced the cost of buying houses it almost certainly
contributed to house price inflation at the time, which was certainly
high. The government had to phase it out slowly over a long period to
avoid massive increases in mortgage payments and bankrupting those
paying off huge mortgages under full tax relief. Of course it was a
great one for the chancellor as he could increase taxes while claiming
it was for our own good in keeping house prices in check.
The phasing out may have been when there was a period of falling house
prices and some owners having the dreaded negative equity, where they
owed more than the house was worth. However house prices soon rose again
and are higher now than they have ever been.
|
|
| Back to top |
|
|
Flasherly
Guest
|
| Posted:
Sat Sep 24, 2005 1:52 pm Post subject:
Re: buy a house? |
|
|
Caveat Emptor - 40% of new homebuyers last year, and 25% of mortgages
paid no down payment; they are being waived in leu of "creative
financing". One-third and more of these mortgages are being assessed at
interest only, of which, 23% serve investment purposes and 13% qualify
as secondary residencies. Two-fifths of new jobs over the past five
years are housing related in a land $8T in debt. How and why do they do
this, you say? Because I'm heavily invested in real estate and support
$4.6T of investment bank loans that surpass an oustanding value of U.S.
issued Treasuries? Hell no, David. I'm out'a it at first sign the
slumbering giants are awakening.
David Wilkinson wrote:
| Quote: | The great things about a mortgage are that:
a) some part of the payments goes to paying off the capital and this is
a form of forced saving, unlike rent all of which is straight down the
drain
b) the payments do not go up like rent although they can vary with the
interest rate
d) with a relatively small deposit you buy into a highly leveraged asset
that is almost certain to appreciate over the years. For property
inflation is on your side. |
|
|
| Back to top |
|
|
Guest
|
| Posted:
Mon Sep 26, 2005 7:56 am Post subject:
Re: buy a house? |
|
|
Hi,
Sorry for the late reply. I posted a couple of times but the post
didn't show up.
Buying a house for tax breaks is a great idea! In charity you dont get
your money back (not to discount the lessening of guilt, but I prefer $
=) If I am making 55K and have interest payments and property taxes of
about 35K a year, my tax bracket goes down from 50K, where it is about
40% rite now to having no tax at all! (I have other income to take
care of all my other year expenses including grocery, car insurance and
such..) So instead of paying 25K in taxes I am saving that 25K and
investing it in real estate. So in that case, buying a house makes
great sense.
| Quote: | I never understood the line of reasoning to buy a house for "tax
breaks". If you were going to spend the money anyways, then sure, "tax
breaks" make sense. But it doesn't make sense to spend more to save
less.
|
No its not! As explained above ur $1000 are down the drain, wheresa
with the $1500 you are building equity. This is all obviously assuming
that the extra $500 wont affect your ability to provide food n clothing
to your family. =)
| Quote: | Right. But if your rent is $1000, and you're considering an after-tax
mortage payment of $1500 just to get a tax break, that's dumb.
|
I am not in the market to make money but dont want to be in a position
where my house is worth half my mortgage. I am going aroudn in
circles, but just debating with myself what would be the best route,
and hoping someone says something that could push me over on either
side.
| Quote: | What if the market just goes flat and prices don't come down? What if > they
continue to rise? What if they take 10 years to start coming down? I
guess
The house does have to be in the NY area. I work in Manhattan.
what it comes down to is do you need a house now and does it have to
be in the NY area?
|
that is precisely something like that, that I am scared off. But I
also understand that housing prices are going to fluctuate. Lets say I
buy my house for 500K right now, prices fall to 400K in a year, it does
usually go back up to 600K maybe in 5 years from now? What happend in
your case in MA? Prices fell down by more than 10% and when did they
go back up? Obviously I want to try to be at the bottom on the curve
when I buy my house, but its going to be hard (if not almost
impossible) to predict!
| Quote: | Here in Massachusetts, the last time real estate prices skyrocketed,
some folks made the mistake of buying real estate with only 10% down
(or
even less). When housing prices peaked and then fell much more than
10%, they ended up owing more on their mortgage than their home was
worth. And then they were faced with declaring bankruptcy. Lots of
homeowners got caught that way.
|
Its a little of both, obviously induced by the given tax breaks.
| Quote: | You have got to separate the issues involved in buying a house. One,
do you want to buy a house because you want more space better
neighborhood house ownership etc.? Or do you want to buy a house for
appreciation tax breaks etc.?
|
Would you mind stating the reasons of why you feel this way? I
understand its speculative but just trying to encompass as many views
as possible before trying to get to a decision.
| Quote: | If it's the latter my personal thinking is now is not the time to buy > a house.
|
Rent for a similar house doens't matter. We are paying $900 for rent
rite now, but our house is going to be a LOT fancier than our 2 bedroom
co-op rite now. mortgage+tax woudl be around $4000 a month. As far as
the tax breaks are concerned I am going to need a little help on that,
and will probably start a new thread for it. But as for some quick
calculations can you please verify my thinking for me? Making 55K rite
now and getting taxes 40%. So get about 36K in my house. This is ALL
savings for me as my expenses are taken care of through other income
(parents). Now if I am paying about 38K for mortgage+property tax, my
taxable income would come down to 17K and at that point I would
essentially be paying NO TAXES at all. Is my reasoning correct, or am
I missing something?
| Quote: | How much is the rent for a similar house. Is (mortgage + insurance +
other expenses - tax break) a lot greater than rent. If yes then maybe
better to rent. If not then maybe better to buy.
|
What is a homeowners policy? Is that homeowners insurance? And if so,
would anyone know a ballpark figure for a 500K house in Nassau county,
Long Island (around Westbury)? I know its a long shot, but just
wonderign if anyone had some idea.
| Quote: | ...but property taxes won't. My taxes have gone from $200/month to
$440/month.
My homeowners policy has gone up by 50%. My mortgage payment has
remained
constant. It started out at $0 and it's still $0.
|
And finally as I originally said, if (hypothetically) you were getting
a
42% tax on your income and could afford a decent downpayment on a
house, would your advice be to buy a house right now? Or wait a
little while as the alleged "real-estate bubble" bursts?
Thank you everyone for their input no this topic. It is MUCH
appreciated. Thanks again |
|
| Back to top |
|
|
Guest
|
| Posted:
Mon Sep 26, 2005 7:58 am Post subject:
Re: buy a house? |
|
|
Just wanted to post it at the end instead of in the middle of the
thread, so posting it here. Thanks.
Hi,
Sorry for the late reply. I posted a couple of times but the post
didn't show up.
Buying a house for tax breaks is a great idea! In charity you dont get
your money back (not to discount the lessening of guilt, but I prefer $
=) If I am making 55K and have interest payments and property taxes of
about 35K a year, my tax bracket goes down from 50K, where it is about
40% rite now to having no tax at all! (I have other income to take
care of all my other year expenses including grocery, car insurance and
such..) So instead of paying 25K in taxes I am saving that 25K and
investing it in real estate. So in that case, buying a house makes
great sense.
| Quote: | I never understood the line of reasoning to buy a house for "tax
breaks". If you were going to spend the money anyways, then sure, "tax
breaks" make sense. But it doesn't make sense to spend more to save
less.
|
No its not! As explained above ur $1000 are down the drain, wheresa
with the $1500 you are building equity. This is all obviously assuming
that the extra $500 wont affect your ability to provide food n clothing
to your family. =)
| Quote: | Right. But if your rent is $1000, and you're considering an after-tax
mortage payment of $1500 just to get a tax break, that's dumb.
|
I am not in the market to make money but dont want to be in a position
where my house is worth half my mortgage. I am going aroudn in
circles, but just debating with myself what would be the best route,
and hoping someone says something that could push me over on either
side.
| Quote: | What if the market just goes flat and prices don't come down? What if > they
continue to rise? What if they take 10 years to start coming down? I
guess
|
The house does have to be in the NY area. I work in Manhattan.
| Quote: | what it comes down to is do you need a house now and does it have to
be in the NY area?
|
that is precisely something like that, that I am scared off. But I
also understand that housing prices are going to fluctuate. Lets say I
buy my house for 500K right now, prices fall to 400K in a year, it does
usually go back up to 600K maybe in 5 years from now? What happend in
your case in MA? Prices fell down by more than 10% and when did they
go back up? Obviously I want to try to be at the bottom on the curve
when I buy my house, but its going to be hard (if not almost
impossible) to predict!
| Quote: | Here in Massachusetts, the last time real estate prices skyrocketed,
some folks made the mistake of buying real estate with only 10% down
(or
even less). When housing prices peaked and then fell much more than
10%, they ended up owing more on their mortgage than their home was
worth. And then they were faced with declaring bankruptcy. Lots of
homeowners got caught that way.
|
Its a little of both, obviously induced by the given tax breaks.
| Quote: | You have got to separate the issues involved in buying a house. One,
do you want to buy a house because you want more space better
neighborhood house ownership etc.? Or do you want to buy a house for
appreciation tax breaks etc.?
|
Would you mind stating the reasons of why you feel this way? I
understand its speculative but just trying to encompass as many views
as possible before trying to get to a decision.
| Quote: | If it's the latter my personal thinking is now is not the time to buy > a house.
|
Rent for a similar house doens't matter. We are paying $900 for rent
rite now, but our house is going to be a LOT fancier than our 2 bedroom
co-op rite now. mortgage+tax woudl be around $4000 a month. As far as
the tax breaks are concerned I am going to need a little help on that,
and will probably start a new thread for it. But as for some quick
calculations can you please verify my thinking for me? Making 55K rite
now and getting taxes 40%. So get about 36K in my house. This is ALL
savings for me as my expenses are taken care of through other income
(parents). Now if I am paying about 38K for mortgage+property tax, my
taxable income would come down to 17K and at that point I would
essentially be paying NO TAXES at all. Is my reasoning correct, or am
I missing something?
| Quote: | How much is the rent for a similar house. Is (mortgage + insurance +
other expenses - tax break) a lot greater than rent. If yes then maybe
better to rent. If not then maybe better to buy.
|
What is a homeowners policy? Is that homeowners insurance? And if so,
would anyone know a ballpark figure for a 500K house in Nassau county,
Long Island (around Westbury)? I know its a long shot, but just
wonderign if anyone had some idea.
| Quote: | ...but property taxes won't. My taxes have gone from $200/month to
$440/month.
My homeowners policy has gone up by 50%. My mortgage payment has
remained
constant. It started out at $0 and it's still $0.
|
And finally as I originally said, if (hypothetically) you were getting
a
42% tax on your income and could afford a decent downpayment on a
house, would your advice be to buy a house right now? Or wait a
little while as the alleged "real-estate bubble" bursts?
Thank you everyone for their input no this topic. It is MUCH
appreciated. Thanks again |
|
| Back to top |
|
|
darkness39
Guest
|
| Posted:
Mon Sep 26, 2005 8:01 am Post subject:
Re: buy a house? |
|
|
dufffman@gmail.com wrote:
| Quote: | Hi,
If (hypothetically) you were getting a
42% tax on your income and could afford a decent downpayment on a
house, would your advice be to buy a really expensive house? Or wait a
little while as the alleged "real-estate bubble" bursts?
|
It's worth reading what the Economist has had to say over the last
couple of years about the housing bubble. Also the new introduction
for Robert Shiller's Second Edition of 'Irrational Exuberance' (the
book which predicted the dot com bubble) which is all about real
estate. Did you know (I didn't) that the average price rise of housing
in the US (*after inflation*) from 1890-2000 was 0.8%? That little, in
an era which saw the US go from horses to motor cars to jet planes,
when its population must have tripled and its standard of living (more
than) quadrupled?
I have a friend who lives in Queens and is looking to buy a house. A
number of his clients (he is a psycotherapist) are mortage brokers,
real estate finance professionals, real estate agents etc. They are
almost unanimous that prices will fall 30-40% in the next few years.
Needless to say he is not rushing to buy.
I would consider the rent v. own question very carefully. It is not
the case that housing prices only go up: consider Boston in the early
90s (or California). |
|
| Back to top |
|
|
Bucky
Guest
|
| Posted:
Mon Sep 26, 2005 8:01 am Post subject:
Re: buy a house? |
|
|
dufffman@gmail.com wrote:
| Quote: | In charity you dont get your money back
|
OK, fair enough. =)
| Quote: | If I am making 55K and have interest payments and property taxes of
about 35K a year, my tax bracket goes down from 50K, where it is about
40% rite now to having no tax at all!
|
Huh? How do you get 40% tax rate? If you're making $55K, the federal
tax bracket is 25% and the NY state tax should be 7%, which equals 32%.
| Quote: | So instead of paying 25K in taxes I am saving that 25K and
investing it in real estate. So in that case, buying a house makes
great sense.
|
You can't shift all your taxes 1 for 1 completely into real estate
investment. It's deduction based, so you have to spend way more than
25K to get 25K in tax breaks.
| Quote: | As explained above ur $1000 are down the drain, wheresa
with the $1500 you are building equity.
|
In order to make a fair comparison, you have to assume that if you're
renting for $1000, then you're saving an extra $500 per month, which is
equity. With a mortgage, you'll be throwing a lot more money than $1000
down the drain in terms of interest payments, property tax, and
insurance.
There's plenty of rent vs buy calculators available. Plug some figures
into the calculators and let us know the results. I think you'll find
that if you set house appreciation to 0%, rent is almost always better
off than buy. (This is what you should use to evalute tax breaks). If
you set house appreciation greater than 0, then buy will usually be
better than renting in the long-term.
I stand by my statement: there's plenty of good reasons to buy a house,
even in NYC. But if it's purely just for tax breaks (meaning that you
ignore appreciation), it's a bad decision. |
|
| Back to top |
|
|
Bucky
Guest
|
| Posted:
Mon Sep 26, 2005 1:25 pm Post subject:
Re: buy a house? |
|
|
dufffman@gmail.com wrote:
| Quote: | Making 55K rite
now and getting taxes 40%. So get about 36K in my house. This is ALL
savings for me as my expenses are taken care of through other income
(parents). Now if I am paying about 38K for mortgage+property tax, my
taxable income would come down to 17K and at that point I would
essentially be paying NO TAXES at all. Is my reasoning correct, or am
I missing something?
|
You probably want to take this to the misc.taxes newsgroup. This is
definitely beyond the scope of this newsgroup.
$55K should be getting taxed at 25+7=32%, which is $17,600. If you plan
on deducting $38K for mortgage interest and property tax, that would
take your taxable income down to $12K, which would be taxed at
15+5=20%, which comes out to $2400. So you want to spend $38K to save
$15,200?
I don't think you'll be able to get a loan when they see that you're
spending 70% of your gross income on house payments. You should talk
with a real estate agent or loan agent for a reality check. |
|
| Back to top |
|
|
darkness39
Guest
|
| Posted:
Mon Sep 26, 2005 2:00 pm Post subject:
Re: buy a house? |
|
|
The UK finally discontinued the deductions in 1994.
The 'tax induced boom' came at the end of the 80s: it had been possible
for 2 (unmarried) individuals to get deductions on the first £120k of
mortgage. The Chancellor in 1988 abolished this, but left a 6 month
window *at the end of a long housing boom*. Prices rose over 20% in
the remaining 6 months of that year.
The period 1989-1994 was then marked by a long housing slump.
Inflation had risen to 9%, and in a bid to 'shadow' the Exchange Rate
Mechanism (now the 'euro') the Chancellor adopted a policy of
ratcheting up interest rates. They reached 15% in 1992, just as the UK
plunged out of ERM ('Black Wednesday', September 1992). Unemployment
rose sharply, and at the peak the average monthly mortgage payment was
more than 55% of the average household take home pay.
Housing prices plummeted: in London by about 40% (more adjusting for
inflation). 'negative equity' was the watchword of the day: I watched
it ruin many young professional's lives. In less popular and
gentrifying parts of London, property was literally unsaleable--
properties would sit on the market for a year or more.
The turn came in 1994, beginning as always in London. No longer
compelled by the exchange rate policy, the Chancellor allowed interest
rates to fall quite rapidly. It became (much) cheaper to own than to
rent. The City was doing well. Unemployment began to drop.
Since the bottom in 1993 housing prices have more or less tripled
depending on which region of the country. London moved up furthest and
fastest, until the 2001 recession where London has been in something of
a stagnation (and may now be recovering) but the rest of the country
has staged a 'catch up'. 'Buy to let' has become a preferred middle
class savings mechanism: many say they will not rely on stock markets
for their pensions, but nothing is 'safe as houses'.
I would conclude the overt tax effects of the withdrawal of mortgage
deduction have been small-- stealing some fuel from the fire perhaps.
Houses are now more expensive relative to incomes than they have ever
been in UK history (about 5 times avg annual incomes) however because
of low interest rates, monthly mortgages are still about 30% of pay so
much lower than their peak.
The major tax exemption for housing (principal residence capital gains
tax exemption) remains. However, inheritance taxes are now starting to
bite, as the average house is now worth more than the ihneritance tax
threshold, affecting intergenerational wealth transfer.
A further new tax dodge is looming: from April 2006 it will be possible
for high net worth individuals to put a property (eg a second home) as
an asset in their personal pension. This is an effective 40% saving on
the price of the house (the top marginal rate of tax). |
|
| Back to top |
|
|
darkness39
Guest
|
| Posted:
Mon Sep 26, 2005 2:02 pm Post subject:
Re: buy a house? |
|
|
PS important to understand. 90% of UK mortgages are at variable rate,
reset either monthly or (less common now) annually. |
|
| Back to top |
|
|
Ed
Guest
|
| Posted:
Mon Sep 26, 2005 2:23 pm Post subject:
Re: buy a house? |
|
|
"darkness39" <darkness39@yahoo.com> wrote
| Quote: | I would consider the rent v. own question very carefully. It is not
the case that housing prices only go up: consider Boston in the early
90s (or California).
|
http://www.fdic.gov/bank/analytical/fyi/2005/050205fyi.html |
|
| Back to top |
|
|
darkness39
Guest
|
| Posted:
Mon Sep 26, 2005 4:02 pm Post subject:
Re: buy a house? |
|
|
Ed wrote:
Glad that this document supports what I just said ;-). |
|
| Back to top |
|
|
Ed
Guest
|
| Posted:
Mon Sep 26, 2005 4:02 pm Post subject:
Re: buy a house? |
|
|
"darkness39" <darkness39@yahoo.com> wrote in message
news:1127734682.592379.11330@g44g2000cwa.googlegroups.com...
| Quote: |
Ed wrote:
"darkness39" <darkness39@yahoo.com> wrote
I would consider the rent v. own question very carefully. It is not
the case that housing prices only go up: consider Boston in the early
90s (or California).
http://www.fdic.gov/bank/analytical/fyi/2005/050205fyi.html
Glad that this document supports what I just said ;-).
|
Just thought you would enjoy it. |
|
| Back to top |
|
|
darkness39
Guest
|
| Posted:
Tue Sep 27, 2005 8:01 am Post subject:
Re: buy a house? |
|
|
| Thank you. I did. |
|
| Back to top |
|
|
|
|
|
|
FAQ
Memberlist
Register
Profile
Log in to check your private messages
Log in