[andyt]

bootlegga bootlegga:

andyt andyt:

I don't follow your math boots. Rental income is taxed at the same rate as personal income - so you're saying you wouldn't take a raise at work because you have to pay taxes on it? I don't see how you can get a tax deduction worth thousands when as you say, the loss just saves you the tax you would have had to pay on your income. I think you are mixing up your rental income with your tax deduction here.

I know it sounds crazy, but if you have a mortgage, 100% of the interest is a tax deduction, so you can wind up getting about a $10,000 tax deduction while only spending $1500-$2000 out of pocket. And in the first fives years of a mortgage, almost your entire monthly payment goes to interest, not principal (the first year in my condo I paid over $15000, but only accrued $1000 in equity). If you're in a high enough tax bracket (like many owners of rental properties are), then the $10000 tax write-off saves you more than the $1500-$2000 you paid out of pocket.

The reason is you property 'loses money', then it lowers your taxable income (so maybe the owners taxable income was $80,000, but afterwards, it is $70,000). If you can drop a tax bracket, you can literally save hundreds, if not thousands of dollars. Of course, the more properties you own the harder it is.

I know some rental owners who actually do renovations on their properties to create a rental loss.

The problem comes when you sell them off. Then capital gains bites you in the ass big time...

You can deduct the mortgage interest whether you make or lose money on the rental, no? So that's irrelevant.

The old tax bracket dodge - I guess maybe but I doubt it. As I said, it's like refusing a raise at work because it puts you in a higher tax bracket. You'd still wind up with more money in your pocket if you took the raise, just less than if you were still in the old bracket.

Unless I'm missing something here, your math doesn't add up. Tax brackets are 15% on first 40k, 22% on next 40k, 26% on next 45k. So if you go from 80k income to 70k income, you would pay on 80k (6k + 8.8k = 14.8k) on 70k (6k + 6.6k = 12.6k) So you have a tax saving of 2k, but you've forgone 10k in income - how is that a saving?

(Notice how they really whack the middle income earner. the low income people get a low tax rate, but then then ext bracket up really whacks you. If you earn more than that the brackets increase only slightly, ie they are 15%, 22%, 26%, 29%. The median family income in BC, 2008 was 68K).

[bootlegga]

andyt andyt:

bootlegga bootlegga:

andyt andyt:

I don't follow your math boots. Rental income is taxed at the same rate as personal income - so you're saying you wouldn't take a raise at work because you have to pay taxes on it? I don't see how you can get a tax deduction worth thousands when as you say, the loss just saves you the tax you would have had to pay on your income. I think you are mixing up your rental income with your tax deduction here.

I know it sounds crazy, but if you have a mortgage, 100% of the interest is a tax deduction, so you can wind up getting about a $10,000 tax deduction while only spending $1500-$2000 out of pocket. And in the first fives years of a mortgage, almost your entire monthly payment goes to interest, not principal (the first year in my condo I paid over $15000, but only accrued $1000 in equity). If you're in a high enough tax bracket (like many owners of rental properties are), then the $10000 tax write-off saves you more than the $1500-$2000 you paid out of pocket.

The reason is you property 'loses money', then it lowers your taxable income (so maybe the owners taxable income was $80,000, but afterwards, it is $70,000). If you can drop a tax bracket, you can literally save hundreds, if not thousands of dollars. Of course, the more properties you own the harder it is.

I know some rental owners who actually do renovations on their properties to create a rental loss.

The problem comes when you sell them off. Then capital gains bites you in the ass big time...

You can deduct the mortgage interest whether you make or lose money on the rental, no? So that's irrelevant.

The old tax bracket dodge - I guess maybe but I doubt it. As I said, it's like refusing a raise at work because it puts you in a higher tax bracket. You'd still wind up with more money in your pocket if you took the raise, just less than if you were still in the old bracket.

Unless I'm missing something here, your math doesn't add up. Tax brackets are 15% on first 40k, 22% on next 40k, 26% on next 45k. So if you go from 80k income to 70k income, you would pay on 80k (6k + 8.8k = 14.8k) on 70k (6k + 6.6k = 12.6k) So you have a tax saving of 2k, but you've forgone 10k in income - how is that a saving?

(Notice how they really whack the middle income earner. the low income people get a low tax rate, but then then ext bracket up really whacks you. If you earn more than that the brackets increase only slightly, ie they are 15%, 22%, 26%, 29%. The median family income in BC, 2008 was 68K).

It's far different from passing up a raise at work, as you suggest.

The thing is most people (at least those I've met) don't buy and rent properties to make a profit (well not when you only have one or two houses/condos - maybe if you could afford a more it would make sense). You mostly do it to get someone else to pay your mortgage, so that when property prices jump, you can sell and scoop up the extra equity. Others do it because they use real estate as a retirement investment (either providing monthly income or an asset to sell during retirement). Some (like real estate agents) do it as a way of parking their huge cash payments for a tax break (like I've outlined above). In my experience, the only people that look to make money off of rental properties (in the early years anyways) are professional rental companies (with lots and lots of properties) and inexperienced owners.

Yes, you're right, you can deduct mortgage interest whether or not you your property makes money or loses money.

The biggest problem is that in the early years of a mortgage, to make a profit as you suggest, you almost have to price yourself out of the rental market. If I actually wanted to make profit (enough to pay property taxes, condo fees, the extra taxes a profit would accrue, & have some spending money left over), the rent on the condo I used to own would have been almost $1800, and I had a difficult enough time renting it out during the boom at $1300. Nowadays, if you can get $1200 you're happy.

You're not thinking like an accountant. As a property owners you have two choices: pay less taxes because it loses money (see above) or pay more federal/provincial taxes because your income increased by $1000 or $2000 or whatever (whereupon you pay 17%, 23% or 29% depending on which tax bracket you fall into). Of course if you property(s) makes a profit, it must be really high to offset all the extra taxes/expenses.

It's a fine line to walk, but if you have an accountant (or are married to one ), you can figure out which option is best for your own personal finances. The difference is that the rental loss can come off either spouse's income, and in our case, it dropped my wife's taxes by about $3000 each year, and we never spent more than maybe $150 per month extra ($1800 a year), so we saved around $1200 annually. Add that up over three years and it was almost $4000 extra in our pockets.

And like I said initially, it's only really beneficial in the first 5-10 years of ownership. After that, your payments are more principal than interest and it's hard to lose money, so you wind up making money.

[PublicAnimalNo9]

I like bidding wars. Sold my last house for $27,000 more than the assessment value and $17,000 more than the list price

[andyt]

bootlegga bootlegga:

It's far different from passing up a raise at work, as you suggest.

The thing is most people (at least those I've met) don't buy and rent properties to make a profit (well not when you only have one or two houses/condos - maybe if you could afford a more it would make sense). You mostly do it to get someone else to pay your mortgage, so that when property prices jump, you can sell and scoop up the extra equity. Others do it because they use real estate as a retirement investment (either providing monthly income or an asset to sell during retirement). Some (like real estate agents) do it as a way of parking their huge cash payments for a tax break (like I've outlined above). In my experience, the only people that look to make money off of rental properties (in the early years anyways) are professional rental companies (with lots and lots of properties) and inexperienced owners.

Yes, you're right, you can deduct mortgage interest whether or not you your property makes money or loses money.

The biggest problem is that in the early years of a mortgage, to make a profit as you suggest, you almost have to price yourself out of the rental market. If I actually wanted to make profit (enough to pay property taxes, condo fees, the extra taxes a profit would accrue, & have some spending money left over), the rent on the condo I used to own would have been almost $1800, and I had a difficult enough time renting it out during the boom at $1300. Nowadays, if you can get $1200 you're happy.

You're not thinking like an accountant. As a property owners you have two choices: pay less taxes because it loses money (see above) or pay more federal/provincial taxes because your income increased by $1000 or $2000 or whatever (whereupon you pay 17%, 23% or 29% depending on which tax bracket you fall into). Of course if you property(s) makes a profit, it must be really high to offset all the extra taxes/expenses.

It's a fine line to walk, but if you have an accountant (or are married to one ), you can figure out which option is best for your own personal finances. The difference is that the rental loss can come off either spouse's income, and in our case, it dropped my wife's taxes by about $3000 each year, and we never spent more than maybe $150 per month extra ($1800 a year), so we saved around $1200 annually. Add that up over three years and it was almost $4000 extra in our pockets.

And like I said initially, it's only really beneficial in the first 5-10 years of ownership. After that, your payments are more principal than interest and it's hard to lose money, so you wind up making money.

Since your wife is an accountant, I'll have to take your word for it, tho I'm still not convinced - I must be missing something.

As for having to set the rent too high in order to make a profit, then the argument doesn't really apply. It's only if you purposely set the rent to lose money, even if you could easily set it higher that I just don't get your argument. You lowered your wifes income, but you did that by foregoing income, so it seems to me you still just got a percentage of that income back in a tax reduction. I just don't see how foregoing income can result in a profit unless tax rates are over 100%.

Maybe your wife could explain this to me. Except she probably doesn't want to talk to me since she feels I've insulted her personally with my immigrant rants. (It's very doubtful if your wife is a successful accountant that she personally is costing the govt anything - like contributes more than she takes in govt services.)

[bootlegga]

andyt andyt:

Since your wife is an accountant, I'll have to take your word for it, tho I'm still not convinced - I must be missing something.

As for having to set the rent too high in order to make a profit, then the argument doesn't really apply. It's only if you purposely set the rent to lose money, even if you could easily set it higher that I just don't get your argument. You lowered your wifes income, but you did that by foregoing income, so it seems to me you still just got a percentage of that income back in a tax reduction. I just don't see how foregoing income can result in a profit unless tax rates are over 100%.

Maybe your wife could explain this to me. Except she probably doesn't want to talk to me since she feels I've insulted her personally with my immigrant rants. (It's very doubtful if your wife is a successful accountant that she personally is costing the govt anything - like contributes more than she takes in govt services.)

I could quite easily be forgetting something, she's the numbers type and I'm the creative type, so a lot of what she explains go in one ear and out the other...

We never set our rent low to lose money, we charged the market rate. As I said, if I actually wanted to make a profit, I would have had to price myself out of the market. I'm sure after paying the mortgage for 10 years or so, the payments would have dropped far enough for us to make a profit, but we never cared about that really. I'd gladly forgo an extra $50-100 a month for about $20,000 in equity, which is what we got. Short term sacrifice for long term gain and all that...

And no one is upset about your opinion about immigration. After all, everyone is entitled to their own, even if it is the wrong one!

[andyt]

You're not forgoing anything. If you didn't have renters you would lose a lot. Since the market rate is slightly lower than having your mortgage paid in total, you're still getting most of it for free - you would be paying the mortgage anyway if you had no renters. My point is just that if the market rate was say $100 a month profit over your mortgage costs, you would have a little more money in your pocket.

Actually to be able to rent part of the house and have the income pay almost all the mortgage is an incredible deal for you. You've got the capitalist exploitation thing down pat - live off the sweat of others. Rents must be quite high in your area, ie your housing prices are undervalued according to this article.

[Proculation]

I'm glad to have to smallest house in Montreal for a ridiculously low rent per month.

[DrCaleb]

All real estate is overpriced, to me. When you buy a car it depreciates immediately. The longer you drive it, the more worn out it gets, the less someone is willing to pay for it.

But a house that's had many shitty contractors in it's walls doing Allah* knows what to it for 50 years; or were built last year by assembly line style lowest bidders - somehow they get more expensive.

*Where [Lim {Permits -> 0}] [ Allah ] = Mike Holmes

[Robair]

DrCaleb DrCaleb:

But a house that's had many shitty contractors in it's walls doing Allah* knows what to it for 50 years; or were built last year by assembly line style lowest bidders - somehow they get more expensive.

The houses aren't getting more expensive (not much anyway), the land under them is. They aren't making any more of it. Houses are still aprox~120 bucks a square foot until you set them on a nice city lot.

Supply, demand and speculation.

[martin14]

DrCaleb DrCaleb:

All real estate is overpriced, to me. When you buy a car it depreciates immediately. The longer you drive it, the more worn out it gets, the less someone is willing to pay for it.

But a house that's had many shitty contractors in it's walls doing Allah* knows what to it for 50 years; or were built last year by assembly line style lowest bidders - somehow they get more expensive.

*Where [Lim {Permits -> 0}] [ Allah ] = Mike Holmes

been watching his shows, fucking frightening what some people get up to.

[Zipperfish]

Great--just dropped the better part of a million on a 1954 bungalow.

[DrCaleb]

martin14 martin14:

DrCaleb DrCaleb:

All real estate is overpriced, to me. When you buy a car it depreciates immediately. The longer you drive it, the more worn out it gets, the less someone is willing to pay for it.

But a house that's had many shitty contractors in it's walls doing Allah* knows what to it for 50 years; or were built last year by assembly line style lowest bidders - somehow they get more expensive.

*Where [Lim {Permits -> 0}] [ Allah ] = Mike Holmes

been watching his shows, fucking frightening what some people get up to.

The one this year, where some one flipped a house and spray foamed over dirt, then drywalled over it - that scared the crap out of me.

[bootlegga]

DrCaleb DrCaleb:

martin14 martin14:

been watching his shows, fucking frightening what some people get up to.

The one this year, where some one flipped a house and spray foamed over dirt, then drywalled over it - that scared the crap out of me.

My sister has a place in Ritchie (built 1914). When she did some renos a few years while back, she pulled off some drywall in the basement to find about 100 dead, very desicated wasps and a giant nest the size of a basketball. One of the previous owners found it and was too cheap to deal with it properly, so they just caulked the entry holes and left them in there to rot!

On the other hand, a former co-worker did renos on his WW2 area home and found dozens of Superman comics stuffed in the walls as insulation. He sold them on Ebay for almost $2000! It'd be even better if I had this guy's luck...

http://www.edmontonsun.com/news/alberta ... 74571.html

[Benn]

Brenda Brenda:

That has been a way for ages. I even bid on a few houses in The Netherlands that way in 2001. My bids were market value tho, so I never "won".

It won't last long tho. Soon, people will not accept it anymore, and nothing will be sold.

Starting to go just that way here in Winnipeg when I was buying already. Lots of places getting no bids on bidding day. There was a bid day set for our place and we never went in on it. For whatever reason neither did anyone else. I Think people were just thinking it would end up too pricey so didn't bother. We came back and offered just a bit less than asking and the owner reluctantly went for it.

When there are no bids received what some agents try pulling is then raising the price of the listing say 10% in hopes some dummy will not notice what he or she is up to and then under bid the new inflated listing by 10% and settle for 6% less and in the end the place goes for more than original listing. I was only watching the market for a month but never saw this work out for the seller however.

This bidding system was not how things were going in the Capital Region where we sold. Our agent said the market would not allow it out there.

[martin14]

Zipperfish Zipperfish:

Great--just dropped the better part of a million on a 1954 bungalow.

Something that might have cost 5k in material to build.

Good job !