| I think one of the main issues with pricing is the deferral of taxation for the sale of rental or investment properties. A lot of people are seeing housing as a potential retirement savings account that can be reinvested and also produce income at the same time. If I had $100k to put as a down payment on a $500k house, and was able to rent at a rate that would pay, mortgage, taxes and upkeep. In 30 years, even assuming the price of housing stayed the same, it would have been a pretty good investment. What is better though is if anytime within the 30 years the house doubles in price. I can sell it tax free and have enough money to buy an even more expensive house and potentially have a better retirement. As long as I keep shifting the money from one house to another, I never pay taxes. I am also able to continue to rent the property and bring in a nice continuous income. The fun little trick to this is you have to find a new property within 45 days of selling the previous property to keep the tax deferral benefits. I think this 45 day window combined with low interest rates and limited inventory caused most of this crazy increase in housing prices. Unfortunately, the landlords have increased their rents to correspond with local housing prices, and normal hardworking people are getting squeezed more than they ever have been. I don't think this is sustainable, and as soon as there is a drop in renters in an area, and the rental properties start losing money. The housing prices will start to fall. The question is how long this will take. |
This is a 1031 exchange [0], when selling a business and buying a "like" business -- if you can identify the new one within 45 days of selling the old and close within 180, you can defer (not avoid) the long term gains on the deal. So let's say you bought a gas station in a crappy part of town, but you want to sell it and buy a bigger/better/more profitable one by the highway, this is how you do it. If your "business" is rental housing, then you can do the same thing.
Tax evasion is illegal, tax avoidance isn't. Why would you want to pay 15-20% long term gains tax on your gas-station trade-up if you didn't need to?
> Unfortunately, the landlords have increased their rents to correspond with local housing prices, and normal hardworking people are getting squeezed more than they ever have been.
It's just supply and demand -- capitalism at work. I don't think that many landlords are altruistic enough to not want match their rates to the "competition" (in this case housing prices).
[0] https://www.investopedia.com/financial-edge/0110/10-things-t...