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      03-12-2020, 03:10 PM   #89
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Your house is not an asset, it's a liability. You will pay more in principal, interest, insurance, maintenance, utilities, etc than you will ever make in appreciation. Not to mention there are limits on the amount of tax free proceeds you're allowed if you lived in the home 2 of the last 5 years. Plus, take another 5-6% for agent fees upon sale.

An investment property is an asset because it makes you money in cash flow, appreciation, tax savings all while someone else "pays" the mortgage/taxes/ins/HOA.
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      03-13-2020, 08:43 AM   #90
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Originally Posted by TboneS54 View Post
Your house is not an asset, it's a liability. You will pay more in principal, interest, insurance, maintenance, utilities, etc than you will ever make in appreciation. Not to mention there are limits on the amount of tax free proceeds you're allowed if you lived in the home 2 of the last 5 years. Plus, take another 5-6% for agent fees upon sale.

An investment property is an asset because it makes you money in cash flow, appreciation, tax savings all while someone else "pays" the mortgage/taxes/ins/HOA.
If you pay your mortgage off earlier, you reduce interest payments, increasing value. By paying only the exact payment, you are giving the lender more money than you're giving yourself. Pay it sooner and you flip that. Your home is both an asset and a liability. The quicker you pay it off, the quicker you shift it from the liabilities to the assets column.
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      03-13-2020, 10:29 AM   #91
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Originally Posted by TboneS54 View Post
Your house is not an asset, it's a liability. You will pay more in principal, interest, insurance, maintenance, utilities, etc than you will ever make in appreciation. Not to mention there are limits on the amount of tax free proceeds you're allowed if you lived in the home 2 of the last 5 years. Plus, take another 5-6% for agent fees upon sale.

An investment property is an asset because it makes you money in cash flow, appreciation, tax savings all while someone else "pays" the mortgage/taxes/ins/HOA.
Wow. This is just mostly wrong. First of all, principal is just that - principal. If you sell your house for exactly what you bought it for, you make back your "principal". Ignoring all other costs. So principal shouldn't be included against your appreciation because you are completely ignoring what the principal represents.

Utilities also shouldn't be included since you are paying them regardless of whether you rent a home or if you purchased the house, so you should remove them for apples to apples comparison.

That leave interest, insurance and maintenance against appreciation. Whether appreciation outweighs these or not depends a lot probably on the area where you live. If you live in the middle of nowhere like that hermit Run Silent, then maybe it won't outweigh these factors.

But if you were in that scenario, you would then have to take the net "loss" there and figure out what it would have cost you in rent over that same period of time to see if the loss outweighs the amount of rent.

If it doesn't, then the house arguably is still an asset since you wound up paying less overall. And I suspect in the significant majority of cases that's where you'll be.
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      03-13-2020, 10:56 AM   #92
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Originally Posted by Joekerr View Post
Wow. This is just mostly wrong. First of all, principal is just that - principal. If you sell your house for exactly what you bought it for, you make back your "principal". Ignoring all other costs. So principal shouldn't be included against your appreciation because you are completely ignoring what the principal represents.

Utilities also shouldn't be included since you are paying them regardless of whether you rent a home or if you purchased the house, so you should remove them for apples to apples comparison.

That leave interest, insurance and maintenance against appreciation. Whether appreciation outweighs these or not depends a lot probably on the area where you live. If you live in the middle of nowhere like that hermit Run Silent, then maybe it won't outweigh these factors.

But if you were in that scenario, you would then have to take the net "loss" there and figure out what it would have cost you in rent over that same period of time to see if the loss outweighs the amount of rent.

If it doesn't, then the house arguably is still an asset since you wound up paying less overall. And I suspect in the significant majority of cases that's where you'll be.
Overall - in most instances, and certainly in the long run - there is no quicker path to wealth than paid for real estate. Even with a mortgage, you will nearly always come out ahead with respect to renting.

My main property in town (not the one I live in) is currently appraised at $243K. I paid $174K for it in 2015 when it was brand new. I didn't finance it, but had I done so, on a 15yr fixed rate mortgage with 20% down, my monthly payment of principal and interest would have been around $1100/mo assuming a 3% rate. I am currently renting it out at $1450/mo. So that would be a good indication with respect to market rent had I chose to rent instead of buy.

As such - since every month on the imaginary loan above, principal would have been reduced around $700 on average and appreciation was around $1000 per month less $1000 a year in property taxes and another $600 a year in insurance - then it is in asset territory by the sum of nearly $19K a year.

No brainer.

If I ran the numbers on my primary residence - which is substantially more valuable - I am sure the numbers would be even more dramatic.
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      03-13-2020, 11:38 AM   #93
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Originally Posted by Run Silent View Post
Overall - in most instances, and certainly in the long run - there is no quicker path to wealth than paid for real estate. Even with a mortgage, you will nearly always come out ahead with respect to renting.

My main property in town (not the one I live in) is currently appraised at $243K. I paid $174K for it in 2015 when it was brand new. I didn't finance it, but had I done so, on a 15yr fixed rate mortgage with 20% down, my monthly payment of principal and interest would have been around $1100/mo assuming a 3% rate. I am currently renting it out at $1450/mo. So that would be a good indication with respect to market rent had I chose to rent instead of buy.

As such - since every month on the imaginary loan above, principal would have been reduced around $700 on average and appreciation was around $1000 per month less $1000 a year in property taxes and another $600 a year in insurance - then it is in asset territory by the sum of nearly $19K a year.

No brainer.

If I ran the numbers on my primary residence - which is substantially more valuable - I am sure the numbers would be even more dramatic.

This is my crutch. Our house is paid for. We will be buying our "last" house sometime this year.

If I were to keep it and rent it out, the market shows an average rate of $1,200 per month.

I don't know if I can be a good landlord. I don't want to deal with any issues that may arise with the house especially if it came down to someone that just "trashed" the place.

Since we are close to Wofford College, we have a few homes in our neighborhood that are rented to college students with the parents paying the bill. I witness some of the things that go on, and if I owned the place I would probably get into trouble very fast.

First house I ever owned (starter home) I tried to rent out when we moved. First few months went fine, then they stopped paying. I went over and confronted the guy after he stopped taking my calls.

He made a snide remark and slammed the door in my face. At that point, I kicked the door in (As I said...I was stupid when I was younger) and entered the house.

Ended up getting the police called on me. I don't know if I could deal with issues like that again.

I know they have property management companies, but that cuts into your profit.

We had just planned to sell, and put all of the money into the new house.
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      03-13-2020, 11:44 AM   #94
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This is my crutch. Our house is paid for. We will be buying our "last" house sometime this year.

If I were to keep it and rent it out, the market shows an average rate of $1,200 per month.

I don't know if I can be a good landlord. I don't want to deal with any issues that may arise with the house especially if it came down to someone that just "trashed" the place.

Since we are close to Wofford College, we have a few homes in our neighborhood that are rented to college students with the parents paying the bill. I witness some of the things that go on, and if I owned the place I would probably get into trouble very fast.

First house I ever owned (starter home) I tried to rent out when we moved. First few months went fine, then they stopped paying. I went over and confronted the guy after he stopped taking my calls.

He made a snide remark and slammed the door in my face. At that point, I kicked the door in (As I said...I was young and stupid when I was younger) and entered the house.

Ended up getting the police called on me. I don't know if I could deal with issues like that again.

I know they have property management companies, but that cuts into your profit.

We had just planned to sell, and put all of the money into the new house.

Being a landlord is certainly not for everyone. I have extremely strict requirements when it comes to renting - I personally interview them either in person or via phone for my properties overseas - I pull credit reports, investigate employment, call references and much more. As such, I feel I have a very solid renter in my local home. As for the overseas properties - they are relatively expensive for the locations and I also only rent them out as vacation rentals and have a management team onsite there.

Overall - it has increased my annual income substantially and I certainly feel it is worth the work. For others, it may not be, only you can decide.
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      03-13-2020, 01:56 PM   #95
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Originally Posted by Joekerr View Post
Wow. This is just mostly wrong. First of all, principal is just that - principal. If you sell your house for exactly what you bought it for, you make back your "principal". Ignoring all other costs. So principal shouldn't be included against your appreciation because you are completely ignoring what the principal represents.

Utilities also shouldn't be included since you are paying them regardless of whether you rent a home or if you purchased the house, so you should remove them for apples to apples comparison.

That leave interest, insurance and maintenance against appreciation. Whether appreciation outweighs these or not depends a lot probably on the area where you live. If you live in the middle of nowhere like that hermit Run Silent, then maybe it won't outweigh these factors.

But if you were in that scenario, you would then have to take the net "loss" there and figure out what it would have cost you in rent over that same period of time to see if the loss outweighs the amount of rent.

If it doesn't, then the house arguably is still an asset since you wound up paying less overall. And I suspect in the significant majority of cases that's where you'll be.
Wrong. Your principal is tied up for 30 years, awesome. Not cash in your pocket is it?

Utilities are often covered, even partially, by landlords, so take it or leave it, but it's not a big factor either way, I'm just listing possibilities. The fact you even took issue with that small of a thing shows me who I'm talking to.

You know nothing about business. An asset makes you money, a liability costs you money. It's that simple. Your primary residence costs you money, it doesn't make you money. The home you live in is not a business. You sound like the typical person who thinks they're saving money by buying something that's on sale. Good day.
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      03-13-2020, 02:03 PM   #96
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Originally Posted by KingOfJericho View Post
If you pay your mortgage off earlier, you reduce interest payments, increasing value. By paying only the exact payment, you are giving the lender more money than you're giving yourself. Pay it sooner and you flip that. Your home is both an asset and a liability. The quicker you pay it off, the quicker you shift it from the liabilities to the assets column.
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Originally Posted by Joekerr View Post
Wow. This is just mostly wrong. First of all, principal is just that - principal. If you sell your house for exactly what you bought it for, you make back your "principal". Ignoring all other costs. So principal shouldn't be included against your appreciation because you are completely ignoring what the principal represents.

Utilities also shouldn't be included since you are paying them regardless of whether you rent a home or if you purchased the house, so you should remove them for apples to apples comparison.

That leave interest, insurance and maintenance against appreciation. Whether appreciation outweighs these or not depends a lot probably on the area where you live. If you live in the middle of nowhere like that hermit Run Silent, then maybe it won't outweigh these factors.

But if you were in that scenario, you would then have to take the net "loss" there and figure out what it would have cost you in rent over that same period of time to see if the loss outweighs the amount of rent.

If it doesn't, then the house arguably is still an asset since you wound up paying less overall. And I suspect in the significant majority of cases that's where you'll be.
A house is 100% a liability unless it is a rental property.

If something takes money out of your pocket every month it's a liability. If something puts money in your pocket every month, it's an asset.

That doesn't mean a home wont appreciate in value or be worth more than you paid but even if you have your mortgage paid off, you still have taxes and insurance which cost you money out of your pocket.
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      03-13-2020, 02:14 PM   #97
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Wrong. Your principal is tied up for 30 years, awesome. Not cash in your pocket is it?

Utilities are often covered, even partially, by landlords, so take it or leave it, but it's not a big factor either way, I'm just listing possibilities. The fact you even took issue with that small of a thing shows me who I'm talking to.

You know nothing about business. An asset makes you money, a liability costs you money. It's that simple. Your primary residence costs you money, it doesn't make you money. The home you live in is not a business. You sound like the typical person who thinks they're saving money by buying something that's on sale. Good day.
I see you don't take correction well. This is not a surprise, really, as those who are ignorant are usually that way because they didn't want to learn anything in the first place.

But I'm glad you've decided to double down on ignorant statements, for I do find them amusing. And I assure you that I don't care what you think of me but by all means state it here because the most likely scenario is I'll be further amused.

The fact that you think utilities are often / partially covered by landlords is laughable. In those cases where that happens, the landlord has built in the anticipated cost of those utilities to the rent. He/she only does this to make sure necessities for the maintenance of the building don't get cut off that might damage his/her investment. Or to offer a one payment plan to the renter...but either way, those costs are built in whether the renter sees them or not.

Your principal doesn't have to be cash in your pocket, nor did I say it was, but you could convert it to that couldn't you by selling the property? And exiting the mortgage by paying the prepayment penalties. Which you'd only do if it made sense. So no, it isn't tied up for 30 years if you don't want it to be.

Primary residences (upon sale) can indeed make you money. And since housing is basically a necessity, if you net the cost of renting a home minus the amount of interest, R&M, insurance that you paid for the home you own and deduct that portion (or add if that net is a negative) from your cost basis, I'd bet that in the significant majority of the time, the house is making you money on sale.

But you do you.
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      03-13-2020, 02:19 PM   #98
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Originally Posted by Savageenterprise View Post
A house is 100% a liability unless it is a rental property.

If something takes money out of your pocket every month it's a liability. If something puts money in your pocket every month, it's an asset.

That doesn't mean a home wont appreciate in value or be worth more than you paid but even if you have your mortgage paid off, you still have taxes and insurance which cost you money out of your pocket.
What I'm saying though is add it all up - all of what you just mentioned, all those costs. At the end of the day, when you sell your home, is the sale price greater than the sum of all those costs which includes the original purchase of the home? Did you get more cash than you put into it?

Because on a monthly basis, that appreciation could be putting more unrealized cash in your pocket than it is taking out. You realize that cash when you sell it.

I'd still argue rent should be considered in this scenario, as it isn't like you can really live on the street (some do, but generally I would consider housing to be a necessity). And so I think rent should be deducted from your interest and etc costs in determining overall figure.
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      03-13-2020, 02:45 PM   #99
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What I'm saying though is add it all up - all of what you just mentioned, all those costs. At the end of the day, when you sell your home, is the sale price greater than the sum of all those costs which includes the original purchase of the home? Did you get more cash than you put into it?

Because on a monthly basis, that appreciation could be putting more unrealized cash in your pocket than it is taking out. You realize that cash when you sell it.

I'd still argue rent should be considered in this scenario, as it isn't like you can really live on the street (some do, but generally I would consider housing to be a necessity). And so I think rent should be deducted from your interest and etc costs in determining overall figure.
I'd say you definitely pay more if you keep the term of the loan for the full term

Look at the below example.

Total Principal Paid
$400,000
Total Interest Paid
$297,895.61

This is on a home with a 400k loan at 4.125% over 30 years you'll pay 297k in interest alone, so $697k for a home at a purchase price of $450k. I don't see the home being worth $800-900k after the term matures...

Forget about taxes every month, insurance every month etc. Even on the short term, let's say your home appreciates 100k in only a couple of years. After closing costs, realtor fees and the taxes you've paid you may only come out ahead 10-20k and I think that may be generous.

As for your rent comparsion, where I live it's a wash yes, but renting an apartment is also a Liability and thats the bottom line. My property/school taxes are about 1k per month and rent would cost for a 1 BR apt around $1200 per month but no matter how you cut it, it's ultimately taking money out of your pocket.
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      03-13-2020, 03:36 PM   #100
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Originally Posted by Savageenterprise View Post
I'd say you definitely pay more if you keep the term of the loan for the full term

Look at the below example.

Total Principal Paid
$400,000
Total Interest Paid
$297,895.61

This is on a home with a 400k loan at 4.125% over 30 years you'll pay 297k in interest alone, so $697k for a home at a purchase price of $450k. I don't see the home being worth $800-900k after the term matures...

Forget about taxes every month, insurance every month etc. Even on the short term, let's say your home appreciates 100k in only a couple of years. After closing costs, realtor fees and the taxes you've paid you may only come out ahead 10-20k and I think that may be generous.

As for your rent comparsion, where I live it's a wash yes, but renting an apartment is also a Liability and thats the bottom line. My property/school taxes are about 1k per month and rent would cost for a 1 BR apt around $1200 per month but no matter how you cut it, it's ultimately taking money out of your pocket.
You really don’t see a home being worth that much after the term is up? I bought my first townhouse for 215k in 2001. Sold it in 2005 for 400k I paid all in around 40k in interest on that loan over the 4 years , and walked out 185k cash in my account. Even with the 40k in interest I paid, I am still up 145k over those 4 years and lived for free..
I put that 145k plus 55k cash I had saved, into my present home and had a mortgage of 400k on it. (600k purchase) My house will be payed off in 5years. I will pay a total of around 200k in interest over my loan. Total cost 800-900k say. Money I put into it in Reno’s and maintenance etc probably around 300k. Total cost is 1.2-1.4million.
Market value today is 1.8million on my home. I am up 400-600k if I sell today.
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      03-13-2020, 03:41 PM   #101
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Quote:
Originally Posted by Savageenterprise View Post
I'd say you definitely pay more if you keep the term of the loan for the full term

Look at the below example.

Total Principal Paid
$400,000
Total Interest Paid
$297,895.61

This is on a home with a 400k loan at 4.125% over 30 years you'll pay 297k in interest alone, so $697k for a home at a purchase price of $450k. I don't see the home being worth $800-900k after the term matures...

Forget about taxes every month, insurance every month etc. Even on the short term, let's say your home appreciates 100k in only a couple of years. After closing costs, realtor fees and the taxes you've paid you may only come out ahead 10-20k and I think that may be generous.

As for your rent comparsion, where I live it's a wash yes, but renting an apartment is also a Liability and thats the bottom line. My property/school taxes are about 1k per month and rent would cost for a 1 BR apt around $1200 per month but no matter how you cut it, it's ultimately taking money out of your pocket.
We would be in agreement that rent payments are a liability. It comes down to whether or not you consider housing to be a necessity. If it is, then you have to factor in some cost of living (rent / purchase) and say that it is fixed cost - a required cost. And then deduct that cost from your cost basis in the house to see what you actually made from owning vs not owning.

Using your $1,200/month example above, rent over the same 30 year period assuming it never ever went up, would cost $432,000 over that period. If you deduct that amount from your $697K and after you tack on the insurance, taxes, etc, and compare to your selling price, I still think you'll be ahead all in all.
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      03-13-2020, 04:24 PM   #102
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      03-13-2020, 05:29 PM   #103
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I don’t understand why people who advocate renting think the aren’t paying property taxes, insurance and maintenance, as well as capital costs. They are baked into the rent. No landlord just voluntarily pays that stuff without recovering them to be nice to tenants. They rent to tenants to earn a return.
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      03-14-2020, 06:52 AM   #104
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Just refinanced with cash out at 3.25%. I didn’t want to wait any longer. And my house gained $165k in value. My refi guy told me that the rate would be much lower if I didn’t take some money out , but shit itches me when I have projects around the house.
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      03-15-2020, 12:48 PM   #105
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Run Silent , TboneS54 and Savageenterprise are talking more sense on this topic than I have ever read.
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      03-15-2020, 04:14 PM   #106
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Originally Posted by Clark_Kent View Post
The window has not closed so let's not sow the seeds of panic. There will almost certainly be another rate cut, perhaps two, between now and the end of the year. Also, folks should understand what it means when "rates go up". It doesn't always mean the rate literally has moved from 3.25% to 3.375% for example. Often times it means the cost of a particular rate may no longer be the same as it was yesterday or earlier in the day. And even if the rate has actually moved, an 1/8th or 2/8ths of a point will not materially change the monthly payment on a mortgage once amortized over 20 or 30 years. Further, the retail lending space is hyper-competitive so often times origination, fees or points are negotiable especially on the jumbo product if you're shopping rates with multiple institutions.
And here it is folks....as I said, the window is not closed. In fact it's open wider than ever before.

https://www.washingtonpost.com/business/2020/03/15/federal-reserve-slashes-interest-rates-zero-part-wide-ranging-emergency-intervention/?tidr=a_breakingnews&hpid=hp_no-name_mhp-breaking-news%3Apage%2Fbreaking-news-bar
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      03-16-2020, 07:39 AM   #107
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Originally Posted by ToddBlack88 View Post
You really don’t see a home being worth that much after the term is up? I bought my first townhouse for 215k in 2001. Sold it in 2005 for 400k I paid all in around 40k in interest on that loan over the 4 years , and walked out 185k cash in my account. Even with the 40k in interest I paid, I am still up 145k over those 4 years and lived for free..
I put that 145k plus 55k cash I had saved, into my present home and had a mortgage of 400k on it. (600k purchase) My house will be payed off in 5years. I will pay a total of around 200k in interest over my loan. Total cost 800-900k say. Money I put into it in Reno’s and maintenance etc probably around 300k. Total cost is 1.2-1.4million.
Market value today is 1.8million on my home. I am up 400-600k if I sell today.
Your accounting for just your home value, not all of the other liabilities incurred every month. If you put hard cash into it naturally it will raise the value of your home on top of regular inflation.

For example, taxes on my house are literally a little above 12k per year. Over 30 years, not even accounting for an increase in taxes each year but naturally that would happen, that would $360,000 over the term. Oil costs me an estimated $2000 per year. That would be another 60k. Electric same thing. Add another 60k.

So no, I don’t think a home will increase enough to turn a profit after all the interest, tax and utility costs over an entire 30 year term after all said and done. Over a shorter term, it’s certainly possible but not over 30 years.

However, on the shorter term, your closing costs and realtor fees play a much higher factor into your ownership costs. Closing costs are around 4-5% and so are realtor fees when selling, not counting if you have a realtor who helps you find a home. So figure just to break even your home has to appreciate 10%, plus any money you put into it which most people do when they first move into a house.
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      03-16-2020, 08:09 AM   #108
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Unless you live in the woods, you pay heating / cooling and electric costs whether you own or rent. Those are living costs, not homeownership costs. As for property taxes, see earlier post. You pay those as a renter too. They are just baked into the rent. When you rent you pay every cost incurred by the owner + a return. Otherwise, no one would invest in property to rent to you.
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      03-16-2020, 08:41 AM   #109
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Originally Posted by RickFLM4 View Post
Unless you live in the woods, you pay heating / cooling and electric costs whether you own or rent. Those are living costs, not homeownership costs. As for property taxes, see earlier post. You pay those as a renter too. They are just baked into the rent. When you rent you pay every cost incurred by the owner + a return. Otherwise, no one would invest in property to rent to you.
Exactly.
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      03-16-2020, 05:00 PM   #110
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I don’t understand why people who advocate renting think the aren’t paying property taxes, insurance and maintenance, as well as capital costs. They are baked into the rent. No landlord just voluntarily pays that stuff without recovering them to be nice to tenants. They rent to tenants to earn a return.
That's not how it works. You don't figure out your rents from your expenses. You do that research and analysis (ROI) before you buy a property. Rents are based on market. You want as much $ as possible, no matter what your expenses are. Then you want to back it down a hair so you're not at the absolute top of the market so as to attract and retain quality tenants.

Of course the market will reflect a rent price that will cover a well bought investment, that's natural. If you make a bad investment, you can't just raise the rent to cover your expenses. Your ceiling is the market rate.
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