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From: jld@ulysses.UUCP (Jeff David)
Newsgroups: net.taxes
Subject: Re: Is it a better investment to rent or own real estate?
Message-ID: <1427@ulysses.UUCP>
Date: Fri, 10-Oct-86 11:32:30 EDT
Article-I.D.: ulysses.1427
Posted: Fri Oct 10 11:32:30 1986
Date-Received: Sat, 11-Oct-86 20:47:31 EDT
References: <5852@decwrl.DEC.COM>
Organization: AT&T Bell Laboratories, Murray Hill
Lines: 39

> The following analysis was obtained the Consumer Reports magazine, May 81.
> 
This analysis is so incredibly flawed that I cannot help but to respond:

The main points:
	1) "Time in money" is treated as a cash outlay evenwhen it is not.
	   Then, even if it is not, it is added back as a cash expense that
	   could be invested by a renter!  You cannot have it both ways.

	2) The tax calculation is also flawed.  For the person described,
	   owning a house allows ALL itemized deductions to be taken as
	   opposed to the standard deduction.  The proper tax saving
	   calculation is (All Itemized Deductions - Standard Deduction) *
	   Marginal Tax Rate, not (House Deductions - Std Deduction) * MTR.

	3) Tax preparers are totally unnecessary for schedule A.

	4) The utility rates (especially water) are suspiciously high.  I
	   am paying $10/mo for water in 1986 in New Jersey where water
	   is supposedly a scarce commodity.

	5) The comparison of the rental property is apples and oranges.
	   At the very least, a 3 bedroom apartment should be used for
	   comparison.  The proper way to proceed would be to assume you
	   are renting a similar house.

	6) The assumption is made that the renter has the discipline to 
	   invest the saved difference.  In reality the "savings" is more
	   often spent than saved.  The same argument is made when deciding
	   whether to buy a car with cash.  If you invest the payment, you
	   come out ahead.  9 times out of ten that wouldn't happen.

If I have the time I will do an alternative analysis.  But you can see
that if you eliminate the "time in money" and do the proper tax calculation,
the homeowner comes out way ahead.

Jeff David

P.S.  Under the new tax law, however, it is not so clear.