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The downside of real estate ETFs is you don't see the mortgage interest deduction which can decrease the house payments by ~20% (depending on tax bracket).

prostoalex 11y ago
This assumes the tax opportunity is zero. What if you take the net amount you would've saved and stick it into an IRA?
- usaar333 11y ago
  IRAs are going to beat returns on buying a house any day. I'm thinking about what to do beyond the contribution maximum ($18k/year).
  - 7Figures2Commas 11y ago
    If you are self-employed, you can set up a solo 401(k). The $18,000 you refer to is the limit for elective employee deferrals. You can contribute 25% of your self-employment compensation (20% if you're a sole proprietor or have a single-member LLC) as an employer profit sharing contribution. In total, between employee and employer contributions, you can contribute a maximum of $53,000/year. The great thing about a self-directed solo 401(k) is that you can purchase physical real estate in the retirement (speak to qualified counsel about the rules). Also, if you want to buy a home, you can borrow up to half of your 401(k) balance (to use as a down payment) and, if your plan allows, the repayment term for a loan used to purchase a primary residence can typically be extended beyond five years (the typical term).
7Figures2Commas 11y ago
The mortgage interest deduction is for most people overrated. I believe only about half of homeowners actually claim it, and I recall that the average deduction was around $2,000/year. Again, if your interest is in profit, real estate-related investments are hard to beat for the average person, especially if you hold them in tax advantaged retirement accounts. Also, consider that with a leveraged product like MORL, which has total annual fees of .80%, you're leveraging at an effective cost of capital you could never get as an individual.
- usaar333 11y ago
  I agree for the average person it's not too significant, but the average person on this site earns well above the average person. As an example, for a programmer in a ~37% tax bracket owning a million dollar home in the Silicon Valley, you could be talking about a tax-deduction on the order of $12k annually. With that said, MORL looks like a very interesting product -- and probably a better investment than a house for most people.

prostoalex 11y ago

This assumes the tax opportunity is zero. What if you take the net amount you would've saved and stick it into an IRA?

usaar333 11y ago
IRAs are going to beat returns on buying a house any day. I'm thinking about what to do beyond the contribution maximum ($18k/year).
- 7Figures2Commas 11y ago
  If you are self-employed, you can set up a solo 401(k). The $18,000 you refer to is the limit for elective employee deferrals. You can contribute 25% of your self-employment compensation (20% if you're a sole proprietor or have a single-member LLC) as an employer profit sharing contribution. In total, between employee and employer contributions, you can contribute a maximum of $53,000/year. The great thing about a self-directed solo 401(k) is that you can purchase physical real estate in the retirement (speak to qualified counsel about the rules). Also, if you want to buy a home, you can borrow up to half of your 401(k) balance (to use as a down payment) and, if your plan allows, the repayment term for a loan used to purchase a primary residence can typically be extended beyond five years (the typical term).

7Figures2Commas 11y ago

The mortgage interest deduction is for most people overrated. I believe only about half of homeowners actually claim it, and I recall that the average deduction was around $2,000/year. Again, if your interest is in profit, real estate-related investments are hard to beat for the average person, especially if you hold them in tax advantaged retirement accounts. Also, consider that with a leveraged product like MORL, which has total annual fees of .80%, you're leveraging at an effective cost of capital you could never get as an individual.

usaar333 11y ago
I agree for the average person it's not too significant, but the average person on this site earns well above the average person. As an example, for a programmer in a ~37% tax bracket owning a million dollar home in the Silicon Valley, you could be talking about a tax-deduction on the order of $12k annually. With that said, MORL looks like a very interesting product -- and probably a better investment than a house for most people.