Why doesn't everyone own a home as a business and rent elsewhere?

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fatFIRE
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Why doesn't everyone own a home as a business and rent elsewhere?

Post by fatFIRE » Sat Feb 15, 2020 10:52 pm

I live in a HCOL area, and probably won't be living here if not for the great job opportunities. I am generally opposed to home ownership primarily because it locks if you in a certain geographical area. For example, look at 2008 recession where people were stuck and could not even move for jobs. However, the year-on-year rent increases averaging 8% p.a. is starting to take its toll on me.

With this perspective in mind, I started running my buy-vs-rent calculator numbers. On average, it still takes 10-years to breakeven vs renting.

More recently, I came across some information that business deductions for Real Estate business are way better than personal deductions for home ownership. If I'm not mistaken, there is no standard deduction barrier to overcome, so every any RE-related deduction starts from $0, whereas for homeownership it starts at $12k (meaning you need to itemize at least $12k of other deductions before you get to see tax benefits).

Following this train of thought, it occurred to me, why not setup a business to buy a home and rent it out, and then I will rent another place somewhere else. That way, I can raise rents, which nullify the rent increase I get as a renter. Granted that I will probably save more money if I live in my own home, but the business deductions may make up for that (I'm in the 30% bracket). Also, I get improved flexibility if I ever need to relocate. Of course, if my local area [suffers a crash -- mod oldcomputerguy], then I will find no renters. But if it's a moderate crash, and I find a job elsewhere, I can still become a remote landlord to keep the home.

So why aren't people doing this? What am I missing?

For the record, we will leave aside emotional reasons like "wanting my own home", etc... I'm strictly looking at it from the quantitative angle.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by runner3081 » Sun Feb 16, 2020 7:42 am

I would say, off the top of my head:

1) Not everyone can afford a mortgage and their own rent on top of that (especially in times of vacancy, etc).
2) People don't want to be a landlord - I know many people who rent because they want the hassle free living that comes with it, toilet leaks, call the landlord, etc. That big advantage of renting goes away when you are a landlord. I.E., time has value.
3) Being forced to relocate is tough. If you are renting apartments, the chances of this are significantly lower, but renting houses can be a game of getting moved around if the landlord dies, sells the house, etc. This, also, has happened to co-workers and friends of mine many times. They then end up with significant living expense increases to stay in the same school district, near family, etc.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Perkunas » Sun Feb 16, 2020 7:56 am

A few reasons off the top of my head: passive loss rules, home-sale exclusion, and paying 2x so that you can deduct 1x still leaves you paying 1x (which is the same as if you pay 1x and deduct 0x).

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RootSki
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by RootSki » Sun Feb 16, 2020 7:58 am

I don’t want to be a landlord, pay rent or have a mortgage, so I don’t do any of those things.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by dbr » Sun Feb 16, 2020 7:59 am

fatFIRE wrote:
Sat Feb 15, 2020 10:52 pm

So why aren't people doing this? What am I missing?

For the record, we will leave aside emotional reasons like "wanting my own home", etc... I'm strictly looking at it from the quantitative angle.
Non-financial reasons for wanting to own one's home and wanting not to be landlord are far more than merely emotional, in fact so much so that almost no one has any interest in doing what you suggest. Lots of people own their own home and also rental real estate.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by BanquetBeer » Sun Feb 16, 2020 8:03 am

You have to look at your return on investment. If you think buying a rental property is the best income generator for you - go for it. For many others, stocks has the best income potential.

Just because you rent a place doesn’t mean you should buy a rental. Just because you drink coke doesn’t mean you need to invest in Coke-a-cola. You would invest to maximize returns while considering your other constraints (stress, free time, etc)

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Dottie57 » Sun Feb 16, 2020 10:01 am

What would happen if everyone owned a home as a busines and rented elsewhere? Doesn’t seem very workable if literally everyone bought trent out but then also rented.

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JoMoney
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by JoMoney » Sun Feb 16, 2020 10:08 am

In the U.S., if you own the home you're living in, you don't pay any taxes on the imputed rent / owners equivalent rent. That's a better deal than paying taxes on rental income and getting some deductions on it.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Sandtrap » Sun Feb 16, 2020 10:21 am

Why doesn't everyone own a home as a business and rent elsewhere?
1. Not everyone wants to be a landlord.
2. Not everyone wants to own a rental "business".
3. Not everyone wants to be a landlord and own a rental business.
4. Not everyone has the financial resources to own and rent out a home, and rent to live elsewhere.
5. If it was financially lucrative to purchase a residential property and rent it out, while renting elsewhere, many would do it and accumulate wealth. It's not a given.

OTOH: many folks do well with VRBO, AirBnB, and/or renting out a portion of their home.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by TheTimeLord » Sun Feb 16, 2020 10:30 am

RootSki wrote:
Sun Feb 16, 2020 7:58 am
I don’t want to be a landlord, pay rent or have a mortgage, so I don’t do any of those things.
+1, I think this sums up my feels as well.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by dukeblue219 » Sun Feb 16, 2020 10:30 am

Because I bought a house to raise a family in for 20 years with neighbors we know and walls I can paint whenever I please.

Whether it was a few dollars better or worse than renting had literally no effect. I know you specifically excluded emotional answers but I think that's going to account for a big chunk of people's reasoning.

That and id rather own three index funds than run around on a Saturday trying to fix up a house for a tenant.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by DVMResident » Sun Feb 16, 2020 10:36 am

We did this. The tax savings were great due to the double deduction dip. I've "tongue-in-cheek" mused that nobody should live in their homes; neighbors should swap homes and rent from each other.

There are lots of people who do long-distance landlording, but it's mostly by accident. I think most people don't do this because most RE is a poor investment, it's capital intensive, increased cash-flow risks (repairs and vacancies), the complexity of the model (landlording is a multi-faceted business), tax-advantaged account limits exceed the needs of most people so they have no incentive to engage in complex maneuvers like this, and finally they don't understand tax mechanics especially of RE investments.
However, the year-on-year rent increases averaging 8% p.a. is starting to take its toll on me.
...
That way, I can raise rents, which nullify the rent increase I get as a renter.
That's a big assumption. Local markets don't move in lock-in-step. I think this strategy is mostly a tax move and it's not a good hedge against rental increases.
Last edited by DVMResident on Sun Feb 16, 2020 10:37 am, edited 1 time in total.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by dbr » Sun Feb 16, 2020 10:37 am

dukeblue219 wrote:
Sun Feb 16, 2020 10:30 am
Because I bought a house to raise a family in for 20 years with neighbors we know and walls I can paint whenever I please.

Whether it was a few dollars better or worse than renting had literally no effect. I know you specifically excluded emotional answers but I think that's going to account for a big chunk of people's reasoning.

That and id rather own three index funds than run around on a Saturday trying to fix up a house for a tenant.
Those answers are practical and also personal preference items but are certainly not merely emotional. In fact those reasons are probably typical of the large majority of people who own homes instead of renting and who don't want to be landlords and maintain a business. Also, if the OP wants to exclude considerations such as these then he has created an unanswerable question.

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JoMoney
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by JoMoney » Sun Feb 16, 2020 10:38 am

Not only does "not everyone want to be a landlord", some people just don't have the temperament for it.
The process of screening renters, taking punitive measures for late rent when someone has a genuine sob story, the eviction process, etc... some people just aren't cut out for doing that, and paying rental management companies to do that job takes a chunk of the investment returns. I've heard tales of people getting run over by property management companies charging hefty fees while inadequately caring for the property, so an owner is never really excused to "passively" invest in rentals.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by dbr » Sun Feb 16, 2020 10:46 am

JoMoney wrote:
Sun Feb 16, 2020 10:38 am
Not only does "not everyone want to be a landlord", some people just don't have the temperament for it.
The process of screening renters, taking punitive measures for late rent when someone has a genuine sob story, the eviction process, etc... some people just aren't cut out for doing that, and paying rental management companies to do that job takes a chunk of the investment returns. I've heard tales of people getting run over by property management companies charging hefty fees while inadequately caring for the property, so an owner is never really excused to "passively" invest in rentals.
We had a relative who owned some rental property with a hired manager. Upon his passing some of the family actually went out to inspect the property. It turned out they were in effect slum landlords and were mortified at the conditions they had been imposing on renters. I think they liquidated the property fairly soon after. That relative was just not a person who should ever have attempted to own rentals.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by arsenalfan » Sun Feb 16, 2020 10:49 am

You're assuming you'd qualify as a real estate professional, and could take the RE depreciation/business expenses as active losses against your income.

To meet IRS designation as a "Real Estate Professional" you'd have to spend the majority f your professional time conducting real estate, at least 750 hours a year. So you'd have to be spending less time at your W2 job - not true for most.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by WoodSpinner » Sun Feb 16, 2020 10:53 am

OP,

If you are opposed to owning a home because it ties you to a specific geography, why are you comfortable being an absentee landlord?

WoodSpinner

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JoMoney
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by JoMoney » Sun Feb 16, 2020 10:57 am

arsenalfan wrote:
Sun Feb 16, 2020 10:49 am
You're assuming you'd qualify as a real estate professional, and could take the RE depreciation/business expenses as active losses against your income.

To meet IRS designation as a "Real Estate Professional" you'd have to spend the majority f your professional time conducting real estate, at least 750 hours a year. So you'd have to be spending less time at your W2 job - not true for most.
... and even if you did qualify as a "professional", I'll say it again, the proposition of getting a deduction against the taxes being payed on rental income doesn't beat not owing taxes at all for the imputed rents value when living in the home you own.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by watchnerd » Sun Feb 16, 2020 10:59 am

JoMoney wrote:
Sun Feb 16, 2020 10:08 am
In the U.S., if you own the home you're living in, you don't pay any taxes on the imputed rent / owners equivalent rent. That's a better deal than paying taxes on rental income and getting some deductions on it.
+1
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by White Coat Investor » Sun Feb 16, 2020 11:02 am

fatFIRE wrote:
Sat Feb 15, 2020 10:52 pm
I live in a HCOL area, and probably won't be living here if not for the great job opportunities. I am generally opposed to home ownership primarily because it locks if you in a certain geographical area. For example, look at 2008 recession where people were stuck and could not even move for jobs. However, the year-on-year rent increases averaging 8% p.a. is starting to take its toll on me.

With this perspective in mind, I started running my buy-vs-rent calculator numbers. On average, it still takes 10-years to breakeven vs renting.

More recently, I came across some information that business deductions for Real Estate business are way better than personal deductions for home ownership. If I'm not mistaken, there is no standard deduction barrier to overcome, so every any RE-related deduction starts from $0, whereas for homeownership it starts at $12k (meaning you need to itemize at least $12k of other deductions before you get to see tax benefits).

Following this train of thought, it occurred to me, why not setup a business to buy a home and rent it out, and then I will rent another place somewhere else. That way, I can raise rents, which nullify the rent increase I get as a renter. Granted that I will probably save more money if I live in my own home, but the business deductions may make up for that (I'm in the 30% bracket). Also, I get improved flexibility if I ever need to relocate. Of course, if my local area [suffers a crash -- mod oldcomputerguy], then I will find no renters. But if it's a moderate crash, and I find a job elsewhere, I can still become a remote landlord to keep the home.

So why aren't people doing this? What am I missing?

For the record, we will leave aside emotional reasons like "wanting my own home", etc... I'm strictly looking at it from the quantitative angle.
If you think owning the home you live in ties you down to one geographic area, try moving your entire empire of rental properties.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by JimInIllinois » Sun Feb 16, 2020 11:08 am

Let me try to do the math on this. You and your clone buy identical houses and rent them to each other. Each year you pay each other R in rent, and pay M in mortgage interest, T in property taxes, and E in other expenses. The rent you pay is not deductible, but the net rental income, R - M -T - E, is taxable, so you pay additional income taxes of 30% * (R - M - T - E) on your rental property. If you live in your own home you still pay M + T + E, but the M and T are deductible, you get an owner-occupied discount on T, and avoid parts of E, so you reduce your tax and other costs compared to renting by at least 30% * (M + T - $12K). That makes the total annual loss of renting to your clone vs living in your own house at least 30% * (R - E - $12K). Also that $12K is reduced by the amount you pay in state income taxes, donate to charity, etc..
Last edited by JimInIllinois on Sun Feb 16, 2020 11:18 am, edited 2 times in total.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by mbasherp » Sun Feb 16, 2020 11:11 am

JoMoney wrote:
Sun Feb 16, 2020 10:08 am
In the U.S., if you own the home you're living in, you don't pay any taxes on the imputed rent / owners equivalent rent. That's a better deal than paying taxes on rental income and getting some deductions on it.
This is the final answer here. In the USA, the biggest tax advantage of all is that imputed rent is completely ignored. This has historical roots, but it is a benefit of a government that encourages property ownership.

I can’t even picture a scenario where you’d truly come out ahead being a landlord and renting your personal residence vs taking the invisible income of imputed rent. It would have to be a local market that is so out of whack that I’d never live there to begin with.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Monsterflockster » Sun Feb 16, 2020 11:18 am

fatFIRE wrote:
Sat Feb 15, 2020 10:52 pm
I live in a HCOL area, and probably won't be living here if not for the great job opportunities. I am generally opposed to home ownership primarily because it locks if you in a certain geographical area. For example, look at 2008 recession where people were stuck and could not even move for jobs. However, the year-on-year rent increases averaging 8% p.a. is starting to take its toll on me.

With this perspective in mind, I started running my buy-vs-rent calculator numbers. On average, it still takes 10-years to breakeven vs renting.

More recently, I came across some information that business deductions for Real Estate business are way better than personal deductions for home ownership. If I'm not mistaken, there is no standard deduction barrier to overcome, so every any RE-related deduction starts from $0, whereas for homeownership it starts at $12k (meaning you need to itemize at least $12k of other deductions before you get to see tax benefits).

Following this train of thought, it occurred to me, why not setup a business to buy a home and rent it out, and then I will rent another place somewhere else. That way, I can raise rents, which nullify the rent increase I get as a renter. Granted that I will probably save more money if I live in my own home, but the business deductions may make up for that (I'm in the 30% bracket). Also, I get improved flexibility if I ever need to relocate. Of course, if my local area [suffers a crash -- mod oldcomputerguy], then I will find no renters. But if it's a moderate crash, and I find a job elsewhere, I can still become a remote landlord to keep the home.

So why aren't people doing this? What am I missing?

For the record, we will leave aside emotional reasons like "wanting my own home", etc... I'm strictly looking at it from the quantitative angle.
Outside of emotional answers like having a landlord sucks as well as being one... quantitatively renting out your home is not lucrative unless you have owned the home a long time or inherited it. Even then you have to live in a HCOLA to see any real appreciation to offset the depreciating asset.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by quantAndHold » Sun Feb 16, 2020 11:33 am

I don’t want a second job. Also, my experience is that expenses on rental properties are higher than expenses on the place I own and live in. They have vacancies, tenants aren’t as careful with my property as I am. If I’m not living in the same city as the rental and have to get professional management, the property manager takes 10% of the rent, and isn’t nearly as careful with my money as I am. And keeping track of the property manager was its own job.

Then there’s the thing where a lot of people, my family included, like having the stability of ownership. Over the past couple of decades in my HCOL location, all of my renter friends have been forced out of one or more rentals, either because they were priced out, or the landlord sold the property, or one of landlord’s family members wanted to live in the property. That doesn’t happen to owners.
Yes, I’m really that pedantic.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by watchnerd » Sun Feb 16, 2020 11:39 am

mbasherp wrote:
Sun Feb 16, 2020 11:11 am
JoMoney wrote:
Sun Feb 16, 2020 10:08 am
In the U.S., if you own the home you're living in, you don't pay any taxes on the imputed rent / owners equivalent rent. That's a better deal than paying taxes on rental income and getting some deductions on it.
This is the final answer here. In the USA, the biggest tax advantage of all is that imputed rent is completely ignored. This has historical roots, but it is a benefit of a government that encourages property ownership.

I can’t even picture a scenario where you’d truly come out ahead being a landlord and renting your personal residence vs taking the invisible income of imputed rent. It would have to be a local market that is so out of whack that I’d never live there to begin with.
+1 again.

Basic math on the taxes gives the clear answer on why this isn't a good strategy.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by SchruteB&B » Sun Feb 16, 2020 11:59 am

Every single person I know who tried being a landlord hated it and found it a total nightmare. No thanks.

I have owned a home the last 20 years because we had children and wanted a certain kind of house in a certain kind of neighborhood in a specific school district. The properties available to rent were by and large not in a desirable part of the school district and they were multi-family apartment buildings. From time to time actual homes would become available to rent in the district but these would be rentals for a few years at most and then the owner would want to sell. I had friends who rented who had to move 3 times in 7 years. Their children did not get to stay in the schools they had started in. Again, no thanks.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by manuvns » Tue Feb 18, 2020 11:42 pm

it probably works in places where rent to property prices ratio are 1:100 and it's only possible in certain areas , most people on those cities hold job that barely pays for rent / mortgage , most don't know how to become landlord or have moeny to buy investment property .

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Lee_WSP » Tue Feb 18, 2020 11:52 pm

JoMoney wrote:
Sun Feb 16, 2020 10:08 am
In the U.S., if you own the home you're living in, you don't pay any taxes on the imputed rent / owners equivalent rent. That's a better deal than paying taxes on rental income and getting some deductions on it.
This plus the deduction comes out of the taxes paid on the rental income. You do not get to deduct from your normal income. I mean, you can deduct startup costs, but not forever. You can't take a deduction if the venture is not profitable.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by watchnerd » Wed Feb 19, 2020 1:09 am

manuvns wrote:
Tue Feb 18, 2020 11:42 pm
it probably works in places where rent to property prices ratio are 1:100 and it's only possible in certain areas , most people on those cities hold job that barely pays for rent / mortgage , most don't know how to become landlord or have moeny to buy investment property .
1:100.... where are such places?

Even when I lived in the Bay Area, the ratios weren't that high.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by leeks » Wed Feb 19, 2020 1:22 am

What you propose makes no sense given the market prices where I live. A tiny single-family townhouse that would sell for $1.2 million would rent for about $3,500/month. The mortgage + property taxes (20% down) would be about $5,500/month. It's not worth buying one unless you really want to live in it.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by harvestbook » Wed Feb 19, 2020 7:19 am

Because I'd have to get the tenants to tend my chickens, garden, and fruit trees.
I'm not smart enough to know, and I can't afford to guess.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by 1130Super » Wed Feb 19, 2020 7:37 am

I have 2 siblings that live in the same Neighborhood 1 is a CPA and they conspired to sell to each other and rent to each-other after the standard deduction doubled. I imagine that this practice is very uncommon but on paper it is genius.
I myself have plans to move from the Minneapolis metro to a rural area for some time now and I just did a large cash out refi that sets me up to buy my next house in cash with the plan to rent my current house.
Last edited by 1130Super on Wed Feb 19, 2020 7:56 am, edited 2 times in total.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by 1130Super » Wed Feb 19, 2020 7:47 am

watchnerd wrote:
Wed Feb 19, 2020 1:09 am
manuvns wrote:
Tue Feb 18, 2020 11:42 pm
it probably works in places where rent to property prices ratio are 1:100 and it's only possible in certain areas , most people on those cities hold job that barely pays for rent / mortgage , most don't know how to become landlord or have moeny to buy investment property .
1:100.... where are such places?

Even when I lived in the Bay Area, the ratios weren't that high.
I believe the 1/100 ratio he is referring too is MONTHLY not yearly.

Example 200k house rents for 2k a month
In middle America that ratio is very possible, and some parts of the country the ratio could even be as low as 50/1

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by watchnerd » Wed Feb 19, 2020 10:02 am

1130Super wrote:
Wed Feb 19, 2020 7:47 am
watchnerd wrote:
Wed Feb 19, 2020 1:09 am
manuvns wrote:
Tue Feb 18, 2020 11:42 pm
it probably works in places where rent to property prices ratio are 1:100 and it's only possible in certain areas , most people on those cities hold job that barely pays for rent / mortgage , most don't know how to become landlord or have moeny to buy investment property .
1:100.... where are such places?

Even when I lived in the Bay Area, the ratios weren't that high.
I believe the 1/100 ratio he is referring too is MONTHLY not yearly.

Example 200k house rents for 2k a month
In middle America that ratio is very possible, and some parts of the country the ratio could even be as low as 50/1
Oh, monthly?

Maybe in Detroit, where houses cost $50k.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Quirkz » Wed Feb 19, 2020 10:16 am

Bluntly, it's more complicated. You're managing aspects of two places. You're keeping books on a second job. You've got more complicated taxes. There's just more stuff, all around.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by rich126 » Wed Feb 19, 2020 10:33 am

fatFIRE wrote:
Sat Feb 15, 2020 10:52 pm
Of course, if my local area [suffers a crash -- mod oldcomputerguy], then I will find no renters. But if it's a moderate crash, and I find a job elsewhere, I can still become a remote landlord to keep the home.
It probably was a unique time but I moved in late 2011 from Arizona to the east coast due to a job change (my choice). That was about the bottom of the AZ house market and I didn't want to sell since my house was in a very nice area and I was quite confident things would improve and I wasn't upside down on my mortgage.

It turned out to be a good time to be a landlord because a number of people had walked away from mortgages and their credit was going to be poor until it came off their credit report but they had good steady income so they were good renters. I found an excellent PM and didn't have any issues and the place may have been vacant 3 months over the 7.5 years it was rented.

That certainly isn't always true.

I wasn't exactly fond of having two mortgages, especially since the AZ one was a 10 year mortgage (I wanted it paid off prior to retirement). I probably should have refi it but I put it into a LLC and that made getting a new mortgage more of a hassle. Turned out well and didn't cause me any standard of living issues.

Rentals like many things, causes some extreme opinions. Those who have had a bad experience or those who try to do it all themselves often will hate it but it certainly can make someone wealthy over time. I had an opportunity during the AZ crash to buy multiple rental properties and looking back I would have made a fortune but, as I mentioned multiple times here, I don't like to put all my eggs in one basket so I passed on those options. I try to take calculated risks in a way that a negative outcome won't kill me financially.

I'm not a fan of renting although I do agree with the annoyance of being tied down when you own a home. When I moved back east, since I wasn't planning to stay long term my plan was to rent but when I compared rents vs. buying, it wasn't a saving IMO. The only way I could see losing money with buying in that location was another sizable market correction and with the job market there, it wasn't likely. So I bought a fixer-upper and sold it 7+ years later and made some money.

JimInIllinois
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by JimInIllinois » Wed Feb 19, 2020 8:08 pm

1130Super wrote:
Wed Feb 19, 2020 7:37 am
I have 2 siblings that live in the same Neighborhood 1 is a CPA and they conspired to sell to each other and rent to each-other after the standard deduction doubled. I imagine that this practice is very uncommon but on paper it is genius.
Can you explain how the math works on this? I must be missing something.

sawhorse
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by sawhorse » Wed Feb 19, 2020 8:24 pm

I live in a high cost area and pay so much rent that I can't save for a down payment for a home. 20% down payment would be $200k around here.

I think you're a wee bit out of touch with how much money most people have, including the typical upper middle class person.

UpperNwGuy
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by UpperNwGuy » Wed Feb 19, 2020 8:30 pm

I don't want to own a business.

1130Super
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by 1130Super » Wed Feb 19, 2020 9:16 pm

JimInIllinois wrote:
Wed Feb 19, 2020 8:08 pm
1130Super wrote:
Wed Feb 19, 2020 7:37 am
I have 2 siblings that live in the same Neighborhood 1 is a CPA and they conspired to sell to each other and rent to each-other after the standard deduction doubled. I imagine that this practice is very uncommon but on paper it is genius.
Can you explain how the math works on this? I must be missing something.
Interest, insurance, and property taxes, and utilities are all deductible against the rental, with depreciation you end up with paper losses to offset other passive income

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Cubicle
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Cubicle » Thu Feb 20, 2020 1:24 am

I don't get it. Why is this different than buying any rental property & "running" it, while living "anywhere" (apartment or a house)?

If you have a mortgage, or pay rent, buying a rental property is just another investment decision you can make. I can't see how they type of dwelling you live in has any bearing on this.

And paying taxes on profits from selling a rental property, & depreciation recapture, & state taxes, kills any inkling of being a rental property owner I had. Which was not a lot to start with.
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by HomerJ » Thu Feb 20, 2020 1:43 am

Dottie57 wrote:
Sun Feb 16, 2020 10:01 am
What would happen if everyone owned a home as a business and rented elsewhere? Doesn’t seem very workable if literally everyone bought trent out but then also rented.
Technically this could work if everyone just rented one house down from the one they owned. One big circle around the entire world. :)
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by hiduplex » Thu Feb 20, 2020 7:17 am

I currently owner-occupy a duplex in a suburb in a low cost area.

I consider where I live a compromise of both a nice place and one that makes money!
I get rent from the one unit and if I need to move out and leave the area I could rent out both units and it would cash flow fine. But then I would always have a home base or a homestead. I think homestead bankruptcy exemption is something worth thinking about as a worst case scenario plan the state I live in my duplex is totally exempt they have no dollar limit in the amount of equity I have in the place once I pay it off it just has to be a half an acre or less of land since its in a town and it is. If you rent you don't have those protections.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by simas » Thu Feb 20, 2020 9:06 am

JimInIllinois wrote:
Wed Feb 19, 2020 8:08 pm
1130Super wrote:
Wed Feb 19, 2020 7:37 am
I have 2 siblings that live in the same Neighborhood 1 is a CPA and they conspired to sell to each other and rent to each-other after the standard deduction doubled. I imagine that this practice is very uncommon but on paper it is genius.
Can you explain how the math works on this? I must be missing something.
.. it is fraud - non arms length transactions. key word above is 'conspired'.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by simas » Thu Feb 20, 2020 9:07 am

1130Super wrote:
Wed Feb 19, 2020 9:16 pm
JimInIllinois wrote:
Wed Feb 19, 2020 8:08 pm
1130Super wrote:
Wed Feb 19, 2020 7:37 am
I have 2 siblings that live in the same Neighborhood 1 is a CPA and they conspired to sell to each other and rent to each-other after the standard deduction doubled. I imagine that this practice is very uncommon but on paper it is genius.
Can you explain how the math works on this? I must be missing something.
Interest, insurance, and property taxes, and utilities are all deductible against the rental, with depreciation you end up with paper losses to offset other passive income
and then you sell you have to recapture depreciation, you do not get capital gains exclusion upon sale , you get no protection (may or may not be relevant in your state) for your 'homestead' ,etc.

again, the key above is 'conspired' - in other normal scenario, you also get to carry liability insurance, pay business taxes ,etc. This rarely makes sense unless you cheat. No different than providing a bunch of services to each others business and doing it 'under the table', not accounting for it, not issuing 1099s ,etc.
Last edited by simas on Thu Feb 20, 2020 9:10 am, edited 1 time in total.

StealthRabbit
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by StealthRabbit » Thu Feb 20, 2020 10:00 am

Owning NNN commercial is a decent way to use RE $ in equity to create sustainable cash flows to cover your personal rents.

The LAST thing I would like to own as a RE investment is a SFR, but at the moment I am stuck with several SFR (Due to commercial RE loan calls in 2008). All rent for ~10% cap rates, but they are a lot more hassle than leasing your own Properties as NNN Commercial.

I follow a very simple rule;

Income property must be able to rent for 1% of capital cost of that property. ($500k property must spin off $5000 / month rents.)

Of course there are still a lot of 'gotchas', but... I intend to rent a home during my later stages of retirement, and likely renting would have been far better to my bottom line in the long term.

I like my rural view properties, and all my rentals are same (High demand, high returns, high resale value, quick sell)

RE is all LOCAL, and you MUST know your stuff (and able to deal with the hassles)

BTDT for over 45 yrs. (while working multiple jobs and also living and working overseas)

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Filetmerlot » Thu Feb 20, 2020 10:29 am

This sounds like a great idea to me. We could do something like this:

Mrs Merlot and I buy a house, but put it one persons name and then rent it out to the other person. That way the rent gets paid to ourselves and we will take the depreciation expense ourselves. A few years before selling it we stop 'renting' it and it becomes both of our primary residence so we can sell without paying depreciation recapture (I'm not sure if that is how depreciation recapture works, but it sounds good in my head)

The big bonus would be in projects around the house.

Suppose she is the one with her name on the house and I am the tenant and she says "I want to change the color of the hallways and living room would you help me pick colors and paint this weekend" I would get to go "no. I'm just the tenant. That's something the landlord will have to take care of."

If it's the other way around where I am on the house and she is the tenant and she wants to change the colors I, as the landlord, can just say no.

I'm starting to like this plan. thank you for suggesting it.

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by Nate79 » Thu Feb 20, 2020 11:31 am

Filetmerlot wrote:
Thu Feb 20, 2020 10:29 am
This sounds like a great idea to me. We could do something like this:

Mrs Merlot and I buy a house, but put it one persons name and then rent it out to the other person. That way the rent gets paid to ourselves and we will take the depreciation expense ourselves. A few years before selling it we stop 'renting' it and it becomes both of our primary residence so we can sell without paying depreciation recapture (I'm not sure if that is how depreciation recapture works, but it sounds good in my head)

The big bonus would be in projects around the house.

Suppose she is the one with her name on the house and I am the tenant and she says "I want to change the color of the hallways and living room would you help me pick colors and paint this weekend" I would get to go "no. I'm just the tenant. That's something the landlord will have to take care of."

If it's the other way around where I am on the house and she is the tenant and she wants to change the colors I, as the landlord, can just say no.

I'm starting to like this plan. thank you for suggesting it.
Is this sarcasm or serious?

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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by watchnerd » Thu Feb 20, 2020 11:35 am

Nate79 wrote:
Thu Feb 20, 2020 11:31 am
Filetmerlot wrote:
Thu Feb 20, 2020 10:29 am
This sounds like a great idea to me. We could do something like this:

Mrs Merlot and I buy a house, but put it one persons name and then rent it out to the other person. That way the rent gets paid to ourselves and we will take the depreciation expense ourselves. A few years before selling it we stop 'renting' it and it becomes both of our primary residence so we can sell without paying depreciation recapture (I'm not sure if that is how depreciation recapture works, but it sounds good in my head)

The big bonus would be in projects around the house.

Suppose she is the one with her name on the house and I am the tenant and she says "I want to change the color of the hallways and living room would you help me pick colors and paint this weekend" I would get to go "no. I'm just the tenant. That's something the landlord will have to take care of."

If it's the other way around where I am on the house and she is the tenant and she wants to change the colors I, as the landlord, can just say no.

I'm starting to like this plan. thank you for suggesting it.
Is this sarcasm or serious?
I think the hallway color suggestion bit is the giveaway.
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cshell2
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Re: Why doesn't everyone own a home as a business and rent elsewhere?

Post by cshell2 » Thu Feb 20, 2020 12:10 pm

I have zero desire to be a landlord. Being a renter is starting to sound a little more appealing as I get older and more sick of dealing with maintenance, however, I have never rented in my life, so I'm sure there are drawbacks I'm not thinking of. Plus, I have all kinds of critters including horses and goats right now, so renting not really a viable option for me.

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