5 ms·

The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate. So that nice saved-up v

The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate. So that nice saved-up vacation money would still go away eventually. For me the nag was about all the thing we wanted to do to the house but couldn’t because it was a rental. To each their own I guess - there are fair points for both approaches. Do what makes sense financially and keeps you happy / less worried :)

Supermancho 6y ago
> The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate That's unlikely, if the rented space is part of a complex. The complex repairs are amortized across all the units. The issue is about cost per square footage. Given you don't have to pay for the same square footage (not the full lot, only the space your unit and parking occupies) it's almost always lower.
pacman2 6y ago
Yes, but the landlord does this repairs pre-tax and all the repairs are deductible.
- seanmcdirmid 6y ago
  Only against rental income right? Otherwise one could get a tax break simply by renting their own house to themselves. If just against rental income, then there still isn’t a difference (they get a tax break because tenants pay rent and for the repairs indirectly post tax). Also, they can’t both be pretax and deductible. The former, the money never shows up on taxes at all, the latter they show up as a subtraction on taxable income.
  - pacman2 6y ago
    I am not a tax specialist, nor do we know which country we are discussion (EU, US, Australia, like in the post). But it may make more sense to buy real estate to rent out to others and live somewhere else for rent. If a company holds a few apartments (and getting rid of non-paying renters can be tricky in some jurisdictions) then you can deduct interest payments, repairs etc. If you live in your own house I don't know how much you can deduct mortgage payments. And if you need a new roof then you have to pay for this by your after tax income salary. Big difference. I am eyeing a loft in an EU country. I wish I had the money to buy it, renovate it and making loft apartments out of it. One I would rent for myself (from my company).
    - labawi 6y ago
      I still don't understand how would it be cheaper if you're paying rent with money that was already taxed - deductions would only make sure it's not taxed again. Maybe you could avoid paying VAT? Another situation would be if your company is financing the apartment directly with pre-tax money that didn't make a round-trip as income, though that's quite a different situation than most rentals, and may be a big no-no (or may be acceptable in your jurisdiction - no idea).
      - pacman2 6y ago
        You earn 100k as a wage slave. After 30% Tax 70k. (Random numbers). Now you pay for your roof 40k. You have 30k left. (Likely your would take a loan but lets ignore this now). The bottom line: You pay 30k in taxes and 40k for the roof and have 30k left. Landlord has 100k rental income. To make it simple, he has to pay 30% tax too. But he has now another bisness expense of 40k for the roof, so he gets only 60k income. Not he pays 30% income tax on that, so he has only 42k left. But this is 12k more than you because the roof was a business expense.
        seanmcdirmid 6y ago
        The landlord doesn’t get to deduct expenses on their own residence. They can deduct expenses on other people’s residences for sure, but one end or the other is taxed at 30%. The landlord isn’t coming out ahead unless they are able to fudge numbers on their taxes in the confusion of their more complicated tax return. They can also deduct 25k in losses over rental revenue from personal income given lots of rules (like you can’t make more than $100k to get the full deduction and it phases out after $150k).
rcpt 6y ago
They don't have to turn a profit from the rent. Many operate at a loss in a bet to build wealth from equity gains.
- amelius 6y ago
  So the landlord has to sell the property to make a profit? That may not be the best outcome either for the people who rent it.
  - dredmorbius 6y ago
    HELOC
    - loloquwowndueo 6y ago
      HIC! THANKSC FORC POSTINGC!
      - dredmorbius 6y ago
        HELOC, HELOC again[1]: https://en.wikipedia.org/wiki/Home_equity_line_of_credit https://en.wikipedia.org/wiki/Home_equity_line_of_credit (As The Cars might say: https://www.youtube.com/watch?v=N3mjTpZk3Ao https://www.youtube.com/watch?v=N3mjTpZk3Ao)
- cko 6y ago
  There's levels to it. If they bought the place cash, then the only thing they have to cover is the property taxes and maintenance. They are still getting a return on investment, but it's like 5% per year (assuming property values track inflation). You can see this in denser metros, where they put more cash down, thus reducing their returns. If they bought it 20% down and want to cash flow for a goal of 8% cash on cash, that's another type of return on investment. If the property value tracks inflation, their return is probably closer to 20% yearly. Also they can shelter that income through depreciation, mortgage interest, expenses, etc.
Daho0n 6y ago
>The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate. Many (most?) rentals in my area (in Scandinavia) is not for-profit and get cheap loans to build. Just like the utility company (electricity, heat, water, fiber). You can get permission to improve and if it is good for the environment you get some of the money back if you move out.
atleta 6y ago
But you get to keep the money you'd spend on buying the house/apartment which you can then invest into other assets. Also, who repairs what is down to agreement. I've always been renting (it's not that uncommon here, in Europe, though it is less common here, in Hungary) and the agreement was always that all repairs that are due to proper usage is to be paid for by the landlord but any damage is to be paid for by the renter (me). Now the little repairs that were due during these years (in 3 different downtown apartments) always went like this: I tell the landlord that something needs to be fixed, they tell me to call someone (or sometimes they send someone they know) and I pay for it, get the invoice which we then deduct from the rent next month. No extra profit made on the repairs. You can say that it is priced in the rent, but then that's the rent (which will be subject to competition). Yes, obviously they are looking to make some meaningful return on their investment. Whether that's higher than the mortgage's interest rate depends a lot on when they actually bought the property. But in an equilibrium the two should be pretty close because if they start to diverge too much people will either stop renting or they will stop buying apartments (and do the other).
- eecc 6y ago
  Margin on rent is always higher for several reasons: risk (the landlord remains hamstrung by a mortgage regardless of whether they have a tenant or not), privilege (not everyone can afford the downpayment, have good enough income history to convince the bank) or convenience (not everyone is interested in settling 10-20-30 years and bother with the hassle and costs of buying.)
- petra 6y ago
  Even assuming the margin on rent is similar to the interest on a mortgage, mortgages end. Renting does not. So financially, unless the mortgage is much more expensive, buying is a better decision.
  - atleta 6y ago
    Again: you either invest into a realty, that happens to be your home, so that you don't have to pay rent, or you pay a rent and you invest into something else. You have to always consider the opportunity cost before you decide which one is a better decision. And it will depend on the market.
astrostl 6y ago
Landlord here. This implies perfect pricing, but it's still moist robots like me making very imperfect decisions.
brailsafe 6y ago
I've come to believe that really what should determine your choice to buy a house or condo comes down just to circumstance or the leaning of your preference. If your tendency is to want a comfortable space that you can make your own, then make that your goal. Likewise if you have innumerable familial or professional long term constraints. If however most of your interests have nothing to do with being stationary and modifying or maintaining your home, then that pretty well points you in a different direction. Likewise again if you have no hard long-term constraints. You can look to other things like financial capability or potential investment returns, but I think the other considerations are more critical.
- canadianfella 6y ago
  >circumstance or preference Way to narrow it down to everything.

Supermancho 6y ago

> The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate That's unlikely, if the rented space is part of a complex. The complex repairs are amortized across all the units. The issue is about cost per square footage. Given you don't have to pay for the same square footage (not the full lot, only the space your unit and parking occupies) it's almost always lower.

pacman2 6y ago

Yes, but the landlord does this repairs pre-tax and all the repairs are deductible.

seanmcdirmid 6y ago
Only against rental income right? Otherwise one could get a tax break simply by renting their own house to themselves. If just against rental income, then there still isn’t a difference (they get a tax break because tenants pay rent and for the repairs indirectly post tax). Also, they can’t both be pretax and deductible. The former, the money never shows up on taxes at all, the latter they show up as a subtraction on taxable income.
- pacman2 6y ago
  I am not a tax specialist, nor do we know which country we are discussion (EU, US, Australia, like in the post). But it may make more sense to buy real estate to rent out to others and live somewhere else for rent. If a company holds a few apartments (and getting rid of non-paying renters can be tricky in some jurisdictions) then you can deduct interest payments, repairs etc. If you live in your own house I don't know how much you can deduct mortgage payments. And if you need a new roof then you have to pay for this by your after tax income salary. Big difference. I am eyeing a loft in an EU country. I wish I had the money to buy it, renovate it and making loft apartments out of it. One I would rent for myself (from my company).
  - labawi 6y ago
    I still don't understand how would it be cheaper if you're paying rent with money that was already taxed - deductions would only make sure it's not taxed again. Maybe you could avoid paying VAT? Another situation would be if your company is financing the apartment directly with pre-tax money that didn't make a round-trip as income, though that's quite a different situation than most rentals, and may be a big no-no (or may be acceptable in your jurisdiction - no idea).
    - pacman2 6y ago
      You earn 100k as a wage slave. After 30% Tax 70k. (Random numbers). Now you pay for your roof 40k. You have 30k left. (Likely your would take a loan but lets ignore this now). The bottom line: You pay 30k in taxes and 40k for the roof and have 30k left. Landlord has 100k rental income. To make it simple, he has to pay 30% tax too. But he has now another bisness expense of 40k for the roof, so he gets only 60k income. Not he pays 30% income tax on that, so he has only 42k left. But this is 12k more than you because the roof was a business expense.
      - seanmcdirmid 6y ago
        The landlord doesn’t get to deduct expenses on their own residence. They can deduct expenses on other people’s residences for sure, but one end or the other is taxed at 30%. The landlord isn’t coming out ahead unless they are able to fudge numbers on their taxes in the confusion of their more complicated tax return. They can also deduct 25k in losses over rental revenue from personal income given lots of rules (like you can’t make more than $100k to get the full deduction and it phases out after $150k).

rcpt 6y ago

They don't have to turn a profit from the rent. Many operate at a loss in a bet to build wealth from equity gains.

amelius 6y ago
So the landlord has to sell the property to make a profit? That may not be the best outcome either for the people who rent it.
- dredmorbius 6y ago
  HELOC
  - loloquwowndueo 6y ago
    HIC! THANKSC FORC POSTINGC!
    - dredmorbius 6y ago
      HELOC, HELOC again[1]: https://en.wikipedia.org/wiki/Home_equity_line_of_credit https://en.wikipedia.org/wiki/Home_equity_line_of_credit (As The Cars might say: https://www.youtube.com/watch?v=N3mjTpZk3Ao https://www.youtube.com/watch?v=N3mjTpZk3Ao)
cko 6y ago
There's levels to it. If they bought the place cash, then the only thing they have to cover is the property taxes and maintenance. They are still getting a return on investment, but it's like 5% per year (assuming property values track inflation). You can see this in denser metros, where they put more cash down, thus reducing their returns. If they bought it 20% down and want to cash flow for a goal of 8% cash on cash, that's another type of return on investment. If the property value tracks inflation, their return is probably closer to 20% yearly. Also they can shelter that income through depreciation, mortgage interest, expenses, etc.

Daho0n 6y ago

>The landlord has to make the same repairs you would, and still turn a profit, at a margin likely higher than a mortgage’s interest rate. Many (most?) rentals in my area (in Scandinavia) is not for-profit and get cheap loans to build. Just like the utility company (electricity, heat, water, fiber). You can get permission to improve and if it is good for the environment you get some of the money back if you move out.

atleta 6y ago

But you get to keep the money you'd spend on buying the house/apartment which you can then invest into other assets. Also, who repairs what is down to agreement. I've always been renting (it's not that uncommon here, in Europe, though it is less common here, in Hungary) and the agreement was always that all repairs that are due to proper usage is to be paid for by the landlord but any damage is to be paid for by the renter (me). Now the little repairs that were due during these years (in 3 different downtown apartments) always went like this: I tell the landlord that something needs to be fixed, they tell me to call someone (or sometimes they send someone they know) and I pay for it, get the invoice which we then deduct from the rent next month. No extra profit made on the repairs. You can say that it is priced in the rent, but then that's the rent (which will be subject to competition). Yes, obviously they are looking to make some meaningful return on their investment. Whether that's higher than the mortgage's interest rate depends a lot on when they actually bought the property. But in an equilibrium the two should be pretty close because if they start to diverge too much people will either stop renting or they will stop buying apartments (and do the other).

eecc 6y ago
Margin on rent is always higher for several reasons: risk (the landlord remains hamstrung by a mortgage regardless of whether they have a tenant or not), privilege (not everyone can afford the downpayment, have good enough income history to convince the bank) or convenience (not everyone is interested in settling 10-20-30 years and bother with the hassle and costs of buying.)
petra 6y ago
Even assuming the margin on rent is similar to the interest on a mortgage, mortgages end. Renting does not. So financially, unless the mortgage is much more expensive, buying is a better decision.
- atleta 6y ago
  Again: you either invest into a realty, that happens to be your home, so that you don't have to pay rent, or you pay a rent and you invest into something else. You have to always consider the opportunity cost before you decide which one is a better decision. And it will depend on the market.

astrostl 6y ago

Landlord here. This implies perfect pricing, but it's still moist robots like me making very imperfect decisions.

brailsafe 6y ago

I've come to believe that really what should determine your choice to buy a house or condo comes down just to circumstance or the leaning of your preference. If your tendency is to want a comfortable space that you can make your own, then make that your goal. Likewise if you have innumerable familial or professional long term constraints. If however most of your interests have nothing to do with being stationary and modifying or maintaining your home, then that pretty well points you in a different direction. Likewise again if you have no hard long-term constraints. You can look to other things like financial capability or potential investment returns, but I think the other considerations are more critical.

canadianfella 6y ago
>circumstance or preference Way to narrow it down to everything.