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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: How much is enough? Date: 1/7/2011 4:46 PM
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Those property taxes are amazingly cheap indeed. Mine will be over $10,500 for my 4700 sq ft home in California purchased last year.

We paid $12,000 in a Chicago suburb 15 years ago. Of course they picked up the garbage twice a week, so it was worth it.

It would be 4.375%. Marginal tax rate about 35% combined, so really only 2.84% guaranteed after-tax return since I would be itemizing regardless of having a mortgage.

OK. It's still twice what you can get in a savings account, which is what the OP advised I should do.

Property values do fluctuate widely though, as we know, so putting a lot of cash into equity is not always a smart thing.

It depends what you mean by "a lot of cash." First, we didn't put "a lot of cash" into it. The property value grew, over time, because we selected well. (Back Bay Boston, riverview. They're not making any more of that.) Second, it's still a small fraction of our net worth, and it provides a diversity of revenue stream - as well as a significant payout. Condo fees: $400/mo. That leaves $600/mo for taxes and maintenance, which is more than sufficient. That that leaves 1800/mo profit. I really don't know where I'm going to put $400,000 (the net after sales commissions, fees, and taxes) and get $24,000 a year, virtually guaranteed, with the prospect of asset appreciation to boot. It's difficult for me to envision a scenario in which this investment goes to zero, unlike any stock or bond you could name.

PS. I don't advocate putting "a lot of cash" into rental property. I do advocate examining the thesis that renting is cheaper than owning. That is absurd on its face, or there would be no landlords, anywhere.

And the return in those accounts is likely to be above 2.84%.

Entirely possible. Indeed, historically over long stretches of time incontestable. But there are also fairly long periods where the market goes backwards or remains flat, and you have no progress at all. The market is trading about where it was a decade ago, for instance. And we all know the old saw about how long it took the market to get back to even after 1929, right? (Something like 25 years, I believe.)

As I am recently retired (well, I retired a while ago; Mrs. Goofy stopped work last year), we can ill afford a long stretch where equities don't produce income.

Also, in the case of California, the home can be in a big earthquake which is a risk we can't afford to insure, and most Californians can't either.

My cheery advice: don't build in California. ;)
 
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