Home Buying Calculus Different For Investors/Homeowners

by ritasimpson on September 19, 2013

in How's The Market

You buy a property in Malibu because you want to live here or have your family grow up here or you just MUST have a Malibu home…

The house-owning math for investors is 180 degrees from the rest of us who are buying a house to live in. Today’s article in the WSJ, gives a great analysis.

Many so-called “investors” come to Malibu wanting to invest in property here, but when they put out the calculator it usually does not pencil out. This is because there is a difference between buying to enjoy or raise a family or as a ¬†an achievement gift to oneself and ¬†family in celebration of all our efforts. Both are valid and desirable but one must know the difference.

Sometimes it’s hard to remember that your home is NOT an investment property. Investment properties have cash flow and pay for themselves. Homes don’t; Homeowners pay for them.

Corporate property investors usually buy with cash. Their acquisition and maintenance expenses are paid by the rental income, and they are taxed only on the difference between their revenue and expenses. There are other Real Estate Tax , including depreciation that enhance cash flow but are unavailable to individuals. Losses can be carried over year after year and used to offset profits elsewhere. And Real Estate Investors have a leg up even on stock investors because hey can avoid capita gains taxes completely if they buy and sell “in Kind” properties. Last but not least, property investors can buy and sell without incurring the cost of moving because they don’t live in their investments.

By contrast Homeowners usually borrow money to buy their homes so even with very low-interest rates the cost of the home by the end of the 30 year mortgage would have climbed to 70% or more over the purchase price! in addition the mortgage tax deduction is only significantly higher than the standard deduction available to all taxpayers in the very high-end areas.

So if you want to live in Malibu and enjoy the Malibu lifestyle, put aside the investment calculus, and make peace with the fact that this is a gift for your soul and your families well being. This is why to come to Malibu

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