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For multifamily housing the price of a building is usually such that if you put around 40% of the purchase price down the building is cash flow break even after

For multifamily housing the price of a building is usually such that if you put around 40% of the purchase price down the building is cash flow break even after mortgage, taxes, expenses. The same is basically true if you buy a house to rent out. This is the case because over long periods of time real estate has appreciated by 8% per year with much less volatility compared to the stock market, and favorable tax rules (particularly depreciation) mean you can "lose" a lot of money on paper and claim those losses to offset other income. Your landlord is not giving you a great deal.

refurb 5y ago
I don’t know about CA, but in Toronto there are so many “investment” condos that renters can get great deals. Renting a new condo for $2,000 per month that costs $800,000 to buy (~$4,000 per month total costs with HOA and down payment opportunity cost) is an amazing deal.
ransom1538 5y ago
"..claim those losses to offset other income" Be careful. If you are thinking of renting out a house remember you need to return a large portion of that depreciation back to the IRS. It isn't free money. Even professional landlords don't know about this. https://homeguides.sfgate.com/paying-back-depreciation-rental-property-42080.html https://homeguides.sfgate.com/paying-back-depreciation-renta...
- Spooky23 5y ago
  Anyone with a competent accountant will avoid that. You can invest in like investments and avoid recapture. There’s a whole industry around this generation of “free money”. The owner of a Hampton Inn / Fairfield Inn, etc, makes more money on selling off accelerated depreciation than on renting rooms.
  - ransom1538 5y ago
    Yes. There is a 1031 exchange. That is when you purchase another like kind investment property. I should have stated during a 'sell'. Lots of landlords actually need to sell homes. So no, a competent accountant will not avoid it during a sell.
    - Spooky23 5y ago
      Oh totally agree there, accountants aren’t magicians. But planning is part of accounting competence. For example, you could avoid this issue by not deducting, or do a like kind purchase if something that produces income more passively. If a landlord just bungles around without knowing what they are doing, recapture taxes are probably one of many issues they are facing.

refurb 5y ago

I don’t know about CA, but in Toronto there are so many “investment” condos that renters can get great deals. Renting a new condo for $2,000 per month that costs $800,000 to buy (~$4,000 per month total costs with HOA and down payment opportunity cost) is an amazing deal.

ransom1538 5y ago

"..claim those losses to offset other income" Be careful. If you are thinking of renting out a house remember you need to return a large portion of that depreciation back to the IRS. It isn't free money. Even professional landlords don't know about this. https://homeguides.sfgate.com/paying-back-depreciation-rental-property-42080.html https://homeguides.sfgate.com/paying-back-depreciation-renta...

Spooky23 5y ago
Anyone with a competent accountant will avoid that. You can invest in like investments and avoid recapture. There’s a whole industry around this generation of “free money”. The owner of a Hampton Inn / Fairfield Inn, etc, makes more money on selling off accelerated depreciation than on renting rooms.
- ransom1538 5y ago
  Yes. There is a 1031 exchange. That is when you purchase another like kind investment property. I should have stated during a 'sell'. Lots of landlords actually need to sell homes. So no, a competent accountant will not avoid it during a sell.
  - Spooky23 5y ago
    Oh totally agree there, accountants aren’t magicians. But planning is part of accounting competence. For example, you could avoid this issue by not deducting, or do a like kind purchase if something that produces income more passively. If a landlord just bungles around without knowing what they are doing, recapture taxes are probably one of many issues they are facing.