[gigatexal]

I’m a home owner and a landlord (we rent out Condo while we are living in Germany) and I despise all the hustle porn millionaires on social media flaunting their real-estate empires. Speculating and amassing homes to what? To become slumlords doing the absolute minimum only to raise rents to the maximum possible? There’s no evidence that these “investors” spur the creation of new homes if anything they speculate up the price of homes for would be buyers.

I also learned recently that the realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else.

Why am I able to use my single rental as a tax shelter? Because of decades of tax lobbying that has made real estate a fantastic investment. But has it helped the average family looking to get a home? To stop being beholden to the whims of the rental market? Has it spurred on builders to build homes? Have these lobbies lobbied local governments against NIMBY policies? F no. By keeping supply high and benefiting from high interest rates they bank — myself included — on renters without the means to buy a home or come up with the down payment to stay renters for even longer.

And don’t get me started on the BS and corruption in the title industry. Why the f does it cost 1500 to 2000 to do a damn title search? And related to that why the f is the seller paying the buyer’s agent a commission? Wtf did the buyers agent do?

Abolish the mortgage interest tax deduction and scale back all the tax breaks that make real estate so speculation friendly. Get rid of 1031 exchanges. Disallow real estate trusts all these tax haven things must go.

[nulbyte]

> I also learned recently that the realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else.

> Why am I able to use my single rental as a tax shelter?

The tax deduction is only available on your primary and secondary residences. (Where secondary here refers to a second home, not a third, etc.) You don't get to claim a primary or secondary residence mortgage interest deduction on your rental properties, because you aren't living there.

This arose out of a previous law that generally allowed for the deduction if interest on all loans because it was administratively unfeasible to differentiate between business and personal interest expense (or so said the wisdom at the time). Even today, business interest expenses are generally deductible. This is wholly separate from the mortgage interest deduction, which is for owner-occupied homes.

[mdorazio]

You didn't actually address any of the parent concerns about why. Why should anyone get a deduction on a second home when inventory levels are at historic lows? Why should homeowners get a fat tax deduction from their mortgage when I as a renter get nothing?

Going further, why should anyone get to exclude a quarter of a million dollars on capital gains when they sell their home?

[ethbr1]

You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

Furthermore, for homes purchased after 2017, the personal mortgage interest deduction has been capped on $750,000 of mortgage debt (first and second home only, combined). [1]

Given the boosted standard deduction, thus isn't a major difference.

If you're going to pick a windmill to tilt at, there are much larger structural issues in US housing. As mentioned elsewhere: zoning that precludes new unit construction, SFH zoning for areas that would support denser development, etc.

[0] https://www.irs.gov/businesses/small-businesses-self-employe...

[1] https://www.irs.gov/publications/p936#en_US_2022_publink1000...

[moate]

>>You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

How does a landlord paying less tax require them to pass that benefit to the renter? Is the assumption that absent this money rent would be higher? If the amount returned to the landlord increased would the rent decrease proportionally or is this just the wishful thinking of trickle down?

[reaperman]

It's valid that benefits would pass to renters if the market was constrained by limited demand and priced at the marginal cost of ownership. If the market is constrained by limited supply, then benefits are absolutely not passed onto renters, and the market will be priced at renters maximum ability to pay.

I don't think we're either purely supply- or demand- constrained in Houston, TX. But I do think that a massive number of rental properties are using cartel-based pricing in the form of YieldStar software. This distorts the market just enough by preventing price drops in large amounts of properties in less desirable areas, which props up demand in more desirable areas.

This only works if large companies like Greystar and Knightvest and Post own both expensive high-end properties where they need strong ROI, and inexpensive crappy properties where they can take a lower ROI because the capital outlay per unit was a smaller % of their total assets. If both the shitty apartment and expensive apartment rent for $1,400/month, the shitty apartment might go vacant but it didn't cost much in the first place. Meanwhile the expensive apartment costs the same $1,400/mo so people say "that's a bit too much for me to really afford but I can't find anything cheaper and this is the nicest one at that price".

Without YieldStar's price distortion, the expensive apartment might still be $1,400 but the shitty apartment would likely be $800/mo. Enough people would move from the nice apartments to the shitty ones that the nice apartments would eventually have to lower their price a bit to maintain target occupancy rates.

[cool_dude85]

Oh, the free market passes this sweetheart deal on to me, the renter. Glad to see how well the system works.

[gigatexal]

Haha it sure as shit does not. Landlord's keep it. The reasoning that shareholder/landlord savings either via by tax or fiat are shared with tenants or customers is a hilariously wrong fallacy of trickle-down economic thinking that has been debunked.

[ethbr1]

It's literally impossible to "keep it."

The landlord charges what they believe they can charge.

That's set by market rates in your local area (or cartels like RealPage [0] et al.).

And that's set to homogenize returns with national rental alternatives.

And that's set by alternative options to invest of capital.

If you +5% to the costs of operating rental property, by removing a deduction, rents are going to go up.

And focusing on commercial mortgage interest deductions is ridiculous, as they're accounted for in the exact same way as every other business: expenses deducted from income.

[0] https://www.propublica.org/article/yieldstar-rent-increase-r...

[uoaei]

Savings are not passed onto the consumer. If they were, we'd all be working 10hr/wk and have free healthcare and insurance.

[dugmartin]

If you have a commercial loan the interest is tax deductible as a business expense. The "tax shelter" many people think of when thinking of becoming a landlord (and is not allowed) is deducting passive losses each year (eg rental income is less than all your rental expenses) when you are not a "real estate professional" as per the IRS guidelines. You can deduct those passive losses when you sell "substantially all" your property. IANAL but I did own, landlord and then sell a commercial property (and would never do it again).

[gigatexal]

There should not be a deduction for the interest paid. It makes no sense and only helps the relatively affluent who can own/buy homes.

[BenFranklin100]

As an aside, a big reason existing residential homes are often profitable speculative investments is because of bans on new homes. The lack of competition from new home construction drives up the price of older homes.

[bluGill]

It isn't just new homes, it is also replacing old homes. If I cannot tear down a house next to downtown because it is "historical" (because it is old, not because anything historically important happened there), then I can't replace it with an apartment and in turn that forces more people to move out to suburbs.

[ta1243]

US realtors seem crazy -- charging tens of thousands for doing what exactly?

The UK system is pretty bad, but you can choose to spend somewhere between about £1500 and £5000 to sell a £500k home, about about £1-2k to buy one (including conveyancing fees)

The US seems to be an order of magnitude more?

[mschuster91]

> US realtors seem crazy -- charging tens of thousands for doing what exactly?

It's not just the US. In Germany, it can be up to 7.14% of the purchase price (depends on the state [1])... so for a 750k unit you're looking at 53k of realtor fees alone, and anything between 3.5-6.5% of sales tax [2], 1.5% for title fees (notary + land register), and on top of that fees from the bank for the credit line... so for that unit you're paying at least 115k in taxes and fees alone. It's nuts, and yet people complain nobody is buying houses any more.

[1] https://www.immobilienscout24.de/wissen/verkaufen/maklerprov...

[2] https://www.finanztip.de/grunderwerbsteuer/

[FrustratedMonky]

Generally, they help with Sales, Marketing, Negotiating, Psychologist, Logistics, etc...

There are a lot of home owners that try to sell their home themselves. It can be done.

So if you don't want to pay a realtor, then don't use them.

Why complain about using a service you aren't being forced to use.

[a2tech]

The problem is that its hard to get your house listed on the MLS if you're not using a realtor (you need to use a digital realtor that lists on your behalf), and many realtors won't even show those houses to their customers if they recognize that its being listed by one of those digital realtors.

Realtors ARE a good idea. They should be helping you navigate a process that most people will only do once or twice in their life and is very complicated and full of pitfalls. However they've used their industry lobbying to carve out a very comfortable position and then stopped doing the thing everyone wanted them to do.

[ssimpson]

MLS also lists the rates the house is paying out. ie, the usual rate for selling a house is 6% and 1/2 goes to the selling agent and 1/2 goes to the buying agent. this is outside any kind of other fees you will pay such as closing costs, etc. If you list lower than like 5% on those rates or decide you don't want to pay the buying agent as much, they just wont show your house, even if its perfect for the client.

[FrustratedMonky]

Probably need to attack the services then.

MLS is a service company, and Realtors are a trademark group.

Perhaps they have what some might call monopoly on the market.

Technically, you can list your property without MLS or without using a trademarked 'Realtor'. There are other agents that aren't 'Realtor'.

It's like complaining that Google isn't listing your ads for free.

Just like Google owns search, so you have to pay them to get listed.

[ta1243]

Yes, we call them "Estate Agents" in the UK. Even the most expensive ones (with brick and mortar shop fronts) charge about 1.5%. Legal fees are typically fixed, and another 0.5% for the average house.

The US seem to charge an average 5.4% - over twice the price.

[gigatexal]

It can be done without a realtor but it's made harder by MLS and realtors to incentivize sellers to use realtors. There's no incentive to make it easy to sell a home. Just in the same way Intuit and other for-profit tax preparers lobby to make free filing of taxes difficult to accomplish.

Rent seekers and middle-men will always revert to their ways of bottom feeding.

[AnimalMuppet]

My cat sold my house once. OK, not exactly, but close.

We were planning on moving. My kids had "adopted" this outdoor cat, giving her food and (outdoor) shelter. We were moving in November, and I figured that cutting her off just as the weather turned would be rather hard on her. So I was trying to find a new home for her.

I ran into a neighbor that I had talked to maybe a total of five times. I asked him if he wanted a cat. He said, "No, but I want your house." He had wanted to buy our house when he moved into the neighborhood, but hadn't been able to afford it then.

So we did a private sale, without a realtor. That cat saved me about $20,000 in realtor fees, so I figured we could keep her.

So, yeah. You're not forced to use them. You can find a buyer (or seller) yourself. You can use Homie or something like it, at least in some places. I just normally don't have the time to do that kind of thing, so I normally use a realtor.

[bluGill]

The sellers agent does advertise in various places, including pictures for those ads and writing the ads. Those are arts worth paying for. How much they are worth paying is a valid question though.

[JKCalhoun]

6% being the going rate for realtors (split between buyer and seller) a £500K home would of course net £30k for the realtors involved (comes out of the seller's haul).

[joncrocks]

The difference being there aren't 'buying' and 'selling' real estate agents in the UK, just ones representing the sellers. A buyer just approaches a bunch of agents asking what is on their books (or looks on RightMove).

And 6%? Try ~1.5%

[ta1243]

And 1.5% is a ridiculously high amount for what they actually do. Strike will list you on rightmove for free, and do photos etc for about £800. Purplebricks in the £1k range (£1300?).

[lxm]

> realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else

What you're saying is correct, but it's worth noting that as of 2017 the number of tax returns claiming mortgage interest deduction went from 20% to 8% https://www.brookings.edu/articles/chipping-away-at-the-mort...

The reason being the increase in standard deduction, and more people opting for that vs going the itemized route. It's unclear how the current (or next) administration feels about the mortgage interest deduction, but it could be the last days of it.

> Get rid of 1031 exchanges

An exchange involves a sale followed by a subsequent purchase. Without the 1031 treatment the seller just might hold forever, which is probably the opposite of what you're trying to achieve.

[gigatexal]

Re the 1031 my original screed aside I concede that you’re probably right.

I also didn’t know that re the standard deduction taking down the amount of folks that take the deduction. Hmmm

[bluGill]

I predict that in the next tax reform - in about 25 years - the mortgage deduction will disappear. It could not in the last round a few years back because so many people use it, but the standard deduction is now so high that most states only the filthy rich can use it and so most voters won't care. (sorry bay area residents, but your property values are something the rest of the country laughs at)

[sneed_chucker]

Actually a lot of people can still use it if they pay for points on a mortgage. The upfront cost of the points is treated as mortgage interest for tax purposes.

[bluGill]

Sure, but it is much less likely useful and so a lot less people care about it.

[cmrdporcupine]

> fought hard to keep the mortgage interest tax deduction

I think this tax deduction is insane, but it's notable that this kind of deduction on interest doesn't exist in Canada and other western countries, but we have in many cases far far worse housing price inflation than the US. So it's not really the culprit.

It's really very simple. When people are buying a home, they are really buying a loan, not a home. 9/10 home buyers buy the home to fit the maximum loan the bank will approve them for. 15 years of insanely low interest rates means demand for those loans was crazy high, so the price of the thing that backed the loan -- the property -- also skyrocketed. Yes the tax break in the US likely worsens that, but it's certainly not the explanatory factor on its own. A large percentage of home buyers have no ability or intent to ever fully pay out their mortgages (and standard "financial advice" during low interest times was not to bother). So the commodity you're "buying" is not a house, but the loan itself, a long term rental arrangement with a bank.

Now that rates are returning to normal levels, I hope to see that level out or fall. But there are strong lobbying pressures to prevent that. There's a whole generation that sees interest rates lower than 5% as normal/expected. Which is pretty crazy, really.

Capital gains exemption on primary residence probably also plays a role. I personally think that exemption should only apply on a portion of the resale value below a certain threshold. That would help put a downward pressure on price inflation.

But the core problem is that there is the most powerful voting demographic explicitly does not want this. Most baby boomers and much of the middle class are relying on the $$ in their properties to retire, because western countries have on the whole dismantled the concept of pensions and a financially secure retirement.

[FrustratedMonky]

Wasn't the article about Realtors?

You are describing people buying real estate. Rental Property owners, buy real estate to rent.

Realtors are in the transaction of buying/selling real estate.

Different Roles.

[gigatexal]

For small time real estate investors we still use realtors and pay their ridiculous fees.