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A principal residence is a better investment than rental properties for dozens of reasons

Posted by John T. Reed on

Are you better off in the long-run buying rental property or one-at-a-time, more and more expensive principal residences?

Start with the list of tenant-only hassles, namely time consumption of managing rental properties. Home owners who live in the home do not have to advertise, show the property, collect rents, evict anyone, and about 1,000 other hassles.

They also do not have to pay the incremental costs caused by tenants—higher utilities, higher insurance, higher property taxes because landlords are not feared by assessors as voters the way homeowners are, higher maintenance costs, higher wear-and-tear costs

Mandatory resident managers after a certain size level. I could go on.

Then there are the taxes. Receiving rent is a taxable event. Not having to pay a rent or mortgage on a free-and-clear house is not a taxable event.

Gains on your home are excluded from income tax up to $250,000 per spouse. Gains on sale of a rental property are fully taxed and the portion of the gain stemming from depreciation deductions that you took or could have taken are recaptured at ordinary income tax rates up to 25%.

Passive loss limits often prevent deducting landlord expenses like mortgage interest and property taxes. On your residence and even your second home, those are deductible and there are not relevant limits.

Owner occupants often get discounts on property taxes. Do landlords? Ha!

Your principal residence equity is not taken into account when calculating your eligibility for Medicaid, long-term care, or your kids’s college financial aid. Will your rental property be taken into account regarding those good deal? Double ha! Every damned dime.

If you go bankrupt, your creditors get every dime of your rental property equity. But the amount of your principal residence equity that they get ranges from zero to most, but never all, depending upon your state.

Residential rental property owners are the most sued category of Americans. Owner occupants of principal residences are almost never sued.

Owner occupant homeowners are arguably the most well-treated voter group in America in terms of laws that apply to them. Why? Nearly two thirds of American voters are homeowners. Landlords are the exact opposite. They are the targets of countless, unbelievable, absurd, unfair anti-landlord laws. Why? There are only 10.6 million taxpayers who filed Schedule E’s (Rent Income) and they are one of the most hated politically groups in human history.

When you were in 2nd grade and the teacher went around the room asking what you wanted to be when you grew up did you answer—“one of the most widely hated people in America—a landlord?”

Homeowners get cheaper, higher loan-to-value ratio, better mortgage terms than landlords. Homeowners often have no personal liability on their residence mortgages; landlords are more likely personally liable. You can get a RAM on your personal residence; not on a rental property.

Whether you are better off owning rental property than one ever more valuable principal residence is a matter of facts and logic,


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