Question for Real Estate Owners/Sellers:

Honey, you know it's a big country and all markets are hyper-local? You have as much chance of gaining actual useful knowledge about this topic here as a Kardashian attending an Ivy League school.

You're also mixing apples and oranges a bit, as you are throwing in annual costs such property taxes, with capital gains from the eventual sale. How long are you talking about owning the property? Is it somewhere you are living during the time, or are you receiving rents during the time you own it?

Thank you for your concern, r1. But I *am* only interested in gaining a little anecdotal insight from the Datalounge, complete with pointless bitchery.

You have to factor in tax deductions. Few people are likely to know the answer to this question. You’re better off looking for articles by economists.

r2, I'm not asking how much *I* expect to earn.

I'm asking people with personal experience to provide a rough estimate of what *they* earned.

Thank you.

You don't mention, OP, whether you're asking about a residence or an investment property.

You also didn't mention, OP, that for most of us, the property taxes and mortgage interest are deductible. As well, a considerable portion of the capital gains, assuming there are any, can be deductible for residential properties depending on your filing status

Why would anyone want to calculate those figures, even if they knew which kind of property you were asking about, without explaining why you're asking?

Finally, you spelled principle wrong in this context.

[quote] You don't mention, OP, whether you're asking about a residence or an investment property.

It doesn't matter to me. I'm open to whatever real estate investment experience people want to share.

[quote] You also didn't mention, OP, that for most of us, the property taxes and mortgage interest are deductible. As well, a considerable portion of the capital gains, assuming there are any, can be deductible for residential properties depending on your filing status

Fine. Include deductibles, write-offs, whatever, etc.

[quote] Why would anyone want to calculate those figures, even if they knew which kind of property you were asking about, without explaining why you're asking?

Anyone is free to opt out of answering my suspiciously unexplained question.

That said, I'd imagine people holding an investment are doing regular calculations of these factors to evaluate if its worth continuing to hold, so would have a rough figure in their mind to share here. For those who don't, obviously I'm not expecting them to sit down right this minute with years of tax paperwork, bank statements, Home Depot receipts, and a calculator, just to answer my question.

[quote] Finally, you spelled principle wrong in this context.

Fine. PRINCIPAL.

It’s a valid question - and important to ask before buying. While everyone says “buy”, you won’t lose, “stop throwing your money away on rent” - it is often better to rent because of all those costs OP mentions. I know this site skews more expensive housing markets but:

- most homebuyers don’t pay enough interest to get any tax benefit from owning/paying interest (requires interest in excess of $12,000 every year or $24,000 per couple)

- the commissions and “flip taxes” and fees mean you lose almost 10% of the value the DAY you buy. If you sold again the next day for the same price, you pay 6% commission, 1-2% flip tax, a few thousand in fees.

- property taxes are in excess of $12,000 year for many expensive markets = money flushed down the drain.

- the elimination / capping of state and local taxes passed by the Scam artists in Congress means you pay taxes on your real estate taxes

- the maintenance easily runs into thousands. Every broken heater, faucet, sink, board is hundreds that just keep adding up.

We are circling a peak in housing prices in most of the US. I would not buy now.

Thanks, r8.

That's a good answer for why nobody would want to answer my question, not even to themselves.

Seems I've gotten mostly irritated non-answers or counter-questions to my OP.

Or maybe, there's just a total lack of reading comprehension here.

There are too many variables, OP.

Just on property taxes alone, one person can be paying $15,000 a year in property taxes and the person right next door can be paying $400 if they're on the Star Program. That's obviously a massive difference and it can happen in the same street much less the same country.

There is no way anyone here can give you an answer. Figure out where you want to buy and then do some research on the area in order to find the answers to your questions. At least try to narrow all this shit down a touch.

I think that so many middle aged gay men here invested in the right cities at the right time and are enjoying/enjoyed the benefits. Big gay cities have seen the biggest booms. Just like the stock market - it won’t always be the case. But these people have convinced themselves they are brilliant investors - rather than lucky.

I take it back.

Reading comprehension *IS* the problem here.

Why do some people assume most posting here on Datalounge are wealthy?

I mostly agree w R8. However, you have to live somewhere. So it's a question of owning vs renting. In an efficient market, you assume most people put 20% down, then factor in the interest/taxes/maintenance. That, plus a return on the 20%, should equal the rent price.

Theoretically, you should get a slightly nicer place for the same amount when you buy, as landlords are reluctant to do expensive upgrades.

In the long run, you should only buy if you are staying a long time, so you can have the house you want. Otherwise, the 5% commission is wasted $.

Real estate is the only way normal people get leverage. They're afraid of the stock market, because it turns so quickly, but they'll lever themselves up 4-to-1 or even 9-to-1 on real estate. For this reason alone, I believe residential real estate is over-valued.

And I agree w R11.

I bought a place in 2015 and put $120K down. I held it for 3 years and then sold. Price increased $160K. Property taxes during the 3 years were less than $10K total. RE commission at sale was 4.5% not 6%. So whatever that works out to. Basically doubled my original investment in 3 years. I used the proceeds to put a huge down payment on a a distressed property that was in foreclosure but was physically in good condition and am sitting on a chunk of cash and have a low mortgage balance at 3.5%. Timing is everything.

[quote] Basically doubled my original investment in 3 years.

Thank you, r16.

Renter if you want a good answer, stop being cunty.

R16 is the story for a lot of gay men in hot cities. I’ve watched over 30 years as real estate goes from a quick path to riches to the cause of bankruptcy. Fortunately timing is a little bit easier to manage in real estate vs the stock market. If you sell when the downturn starts, you won’t lose a ton.

[quote] I’ve watched over 30 years as real estate goes from a quick path to riches to the cause of bankruptcy.

Interesting. Can you give more details? Also, are you in the real estate biz? Know some people who lost money on a McMansion somewhere? Any personal experience?

I think the below chart should give anyone pause who is looking to buy. It represents LA but is symbolic of the market right now. A bubble. In the 2008 boom and bust, there were tons of stories of people who owed more on their mortgage than the house was worth. When they couldn’t afford to pay the mortgage, they not only lost their house but were liable for the debt - causing bankruptcy that destroyed lives.

Making money in real rate is not a sure thing. It’s timing and location. In LA, the market has generally done well because it’s a growth city. In Rust Belt, you lost money. And in Southern cities, you could have lost or made money - but not as badly or as well as the bubble cities.

Does anyone know the mathematical equation? Given a know buying and selling price? Ty.

I've owned as many as two dozen rental houses in a boring little Midwestern Town (down to 2, thank God), so for whatever it's worth my answer is that I want a 10% return on the purchase price. If it's a dollhouse I might settle for 7%, if I need to go there every month with a whip and chair to collect my rents then naturally I'd want more. I mean, right now I can buy any number of (relatively) safe stocks that are paying a 4.5% dividend--why would I fuck with owning rentals unless they make it worth my while?

You're only asking half the question though. In my boring little town we don't get the kind of appreciation other places get. If I were in a market where values were going up 10%+ I'd cheerfully settle for less. In a hot market maybe the property has negative cash flow, but who cares if it's appreciating 20% or more every year--you get on and go for the ride.

Here's a calculator, OP.

It ignores all the complexity. I made ~50% per year, over 30 years! OMG!

Aside from the rising value of the property, I’m happy to report that I have had a roof over my head free of nitpicking landlords, noisy neighbors, or annual binding leases for almost 20 years. Quite a value for an old bum like me.

i'm with R18. OP is kinda cunty.

I earned 63% on my investment over 10 years. Not subject to capital gains, and mortgage interest was tax deductible so didn't include that.

R27 - where are you? Anyone could have invested in parts of this country in 2010 and made 50%. Also, people tend to forget the lose 10% of the value of their home when they sell.

It drives me crazy in those home flipper shows - they buy for $100,000 put in $60,000 and sell for $175,000 and say “making a $15,000 profit” when they actually LOST money because they had to pay commissions, flip taxes and fees on the $175,000 and only took home $158,000 which is less than the $160,000 they spent.

Why would you lose 10% of the value of the house when you sell it, r28?

In my area, apartment rents, especially new construction, are the highest they've ever been. There are plenty of older, garden-style condos available for sale where the monthly mortgage rate combined with HOA fees would still be cheaper than paying rent. I work with a few fairly recent college grads who all decided to live at home and save up for a down payment so they can buy instead of renting.

Whenever you sell - in my area at least - you pay 6% real estate commission, 1% flip tax to city, 1% flip tax to state/county plus a few thousand for legal and other fees. So if you sell a house for $500,000 - you actually only sold it for $450,000. Because you have to pay almost 10% in commissions and fees. So - assuming you are buying to sell for a profit, it’s an important issue.

R23 is a good example of the more pragmatic approach to real estate investing. Don’t listen to all the DLers who have made huge amounts of money on buying and selling houses. That’s a gamble and has more to do with the market and thing pa out of your control.

in general over the long term, say 40 years you are going to stockpile alot more money in your estate by owning your home versus renting. The only way to possibly come out the same or ahead as a renter is if the renter over a long period invests the money they save by paying far less in rent than they would in mortg, repairs, taxes, maint etc. I dont know ANY renters long term disciplined enough to do that. Most people I know that are long term renters have to scramble every month to make the rent.........as they say.

There is also the huge factor of pride of home ownership. There is nothing like painting your walls any color you want rather than having to live under strict restrictions as a renter.

R28 - totally agree. HGTV has sold the American public on soooo many lies and bad real estate decisions. I'm talking cheap and easy DIY, Tiny Houses, and overseas vacation homes bought in areas that will bring ZERO rental income.

Right now - I'm renting. I could buy, but I just moved cross-country to Cali last year and it's too erratic.

OP - I calculated that I made $25K to own my last condo after 9 years of ownership. That includes the money I renovated it, real estate commissions, and any tax benefits I received. It's not awful - but it wasn't a large increase. If you invest that instead, you may have a place you do not love and investments / stock market are never sae.

So - it's more of a question of - how much would I pay to live in something I love? Or would I give that up for something that's cheaper and I can't update since its a rental?

Thanks to everyone who has answered so far. Much appreciated!

Really dependent on where you live. The West Coast made a ton of money the past 8 years or so. It’s going to go down in the next 5 years - I would guarantee. And it’s hard to get a good deal on rental properties now - too much money chasing them and hard to buy anything at a decent rate of return.

I have never looked at owning real estate as a profit move. There is incredible satisfaction from owning your own home, not having to worry about the owner selling, not having to deal with an owner and rent going up and when that day finally comes that you make you last payment, home ownership become free except for taxes, insurance and maintenance.

Meh. I own my house with no mortgage - the taxes and maintenance are almost as much as rent on a 1BR apartment. The only reason I stay is I plan to cash out my house in a few years for retirement and use the money to rent for the next 10 years. And fortunately it will be tax free money - as opposed to my 401k.

One incredible benefit from owning, is that any gain on property passes tax-free to your heirs. If I die in my current place, my heirs will receive about $900.000 tax free. So, that’s about $200,000 in taxes they will not owe. That’s a large sum of money.

I have no desire to leave hundreds of thousands behind. I want to work the bare minimum to make just enough money to live on with a penny left over when I die. I’m selling my house and renting after 65. It’s way too much cash to leave tied up and illiquid. And it gives me some hope of being able to retire.

I intend to die broke. If my retirement funds are running low, I will reverse mortgage the hell out of my house and stay there and pay for all the maintenance and help I may need one day.

If I sold now, I would realize a 60% profit on a property I purchased in 2006, including expenses and taxes. But the rub is that the market will probably experience a downturn in the next year or two. I am not sure I would buy now. Like the stock market, anyone investing in the past decade should have made a bundle, but the future is not auspicious. Real estate is among a number of asset bubbles that are due for a correction, and it may be a severe one given Trump's and the Republicans' policies.

Has anyone been able to not pay capital gains tax on s sale when the gains was in excess of 250K? Thanks

Anyone who is married gets to exclude $500,000 assuming they meet the other requirements, living there for two of the last five years being foremost.

The basis price (total of purchase price plus major renovations) of the home can increase the threshold before the exclusion is applied, again meaning a lower capital gains tax.

R42: Thanks, that’s what I thought, I mailed the check yesterday...

Seems like there would be a lot of costs that could justify increasing your basis for capital gains purposes. Definitely worth having an accountant look at. I’ve added lots of little things - landscaping, repairs, maintenance - when I sold for more than $250k profit. Not sure how close they look at it. The IRS in general is so underfunded and overwhelmed right now they are barely able to process returns and are auditing less and less. Unless it’s a huge gain, not sure I would worry about it. There are people making millions in capital gains on hundreds of transaction each year that never even get a second glance.

Landscaping, repairs, and maintenance definitely don't qualify. Only major repairs (to restore a function, say like a new roof blown off in a storm) or increase the value (like an addition to the house or a totally new kitchen or bath - not a cosmetic upgrade) legitimately qualify under the tax laws.

You're right - not everyone gets audited. Some are based on the amounts they question, others are totally random. But if you do caught, you're fucked if the IRS disagrees with your creativity and wins in court, which they usually do. Filing a Fraudulent Return is a felony and a form of fraud. This is more common than tax evasion (understating income or overstating deductions.) Conviction carries a penalty of up to 3 years in prison, and up to $100k in fines. And of course, the cost of your defense lawyer/negotiator. Tax Evasion is a type of criminal felony where a taxpayer willfully uses illegal means to conceal or misrepresent financial details in order to evade tax laws and avoid paying taxes. If convicted, tax evasion carries up to 5 years in jail and up to $100k in fines. This is different than filing a false tax return so presumably the Feds can charge someone with both.

It's a relatively small risk you'll get caught with a disproportionately large cost in time and money if you are caught and convicted.

R41 here..... I had to pay capital gains on 78000.00. The things that the accountant said I could deduct was questionable in my mind... redoing the kitchen, hardwood, plantation shutters, etc. Initially, she said I could not deduct them, on second visit, she said I could. When she told me I could deduct them, I told her I had no records of what I paid, she said fine. I was honest about the amount. She signed her name, so......I did turn around and buy another house, that’s why I thought I was okay. I knew about the 250K exclusion, but I thought that applied if I didn’t buy something else.

Congrats R46. Well I guess be grateful that you had not worked for years making that $780,000 - you would have had to pay 2x as much tax. It’s good to a rich capital owner in America. Luck is more valuable than hard work.

It used to, R46, (you had two years to reinvest the profit in another property) but the law changed years or so ago to the $250K/$500K exclusions. Are you saying that you didn't take the $250,000 exclusion? If so, you definitely need a new accountant.

If you don't get caught, you're fine. If you do and the items are questioned and the expenses are disallowed, does the accountant guarantee she'll cover the penalties? You'll still be on the hook for the shortfall you didn't pay. If the expenses are disallowed and you don't have the receipts, you'll have a problem. They are not going to go out to the old house to see if they're there. I suppose you could sue her for bad advice, but that takes money to pay the lawyer.

It all depends if you get caught.

I was really lucky, sold real estate after owning it for 3 years for 100k more than I bought it, that was in a hot market and don't expect a repeat any time soon.

I made 378,000.00. I did take the 250,000 exclusion. All I know is, her signature is in it and I’m guessing that will take care of me....🥺🥺🥺. My mistake on post 41.... 128,000, not 78,000.