Chilhowee Lake Topics: Here is One For You Feb

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	Name:	Maverick -
	Subject:	Here is One For You Feb
	Date:	7/24/2006 6:59:36 PM

Assume:

You purchase a $300,000 lot today financed at 6.5% for 30 years with a 10% annual appreciation factor and annual property taxes of $1,000 per year which escalate at 3% per year

VERSUS

a Comparable leased lot at $350.00 per month with a 3% annual CPI over the life of the lot and you take the difference in the annual payments and invest at a very minimul rate of 5% per annum.

Under both scenarios you effective state and federla tax burden is 30% and the LTCG rate is 25% combined for federal and state. Also assume the $500,000 cap remains in place for exempt real estate gains.

I will give you a little more info in case you do not have an amortization software package:

BUY A LOT
Total payments after 20 years:
Principal and interest - $452,637.60
Interest - $318,733.16 (assume 100% tax deductible at current tax rate and you do not max out your Itemized deductions or run into Alternative Minumum Taxes which is a huge FAVORABLE assumption under this scenario, as I gurantee one or the other will kick in if not both)
Property Taxes - $26,870.37 (tax deductible)
Lot Value at End of 20 Years at 10% Appreciation - $1,834,773, do not forget there is a $500k cap on real estate gains.

LEASE A LOT
Total Payments after 20 Years at 3% CPI - $112,855.57
Property Taxes - $0 as you do not own lot
Taske the difference in total payments and invest at a minimual 5% annual ROI

Assume you sell the property at the end of 20 years. Which scenario gives you the most cash in the bank (after taxes) at the end of 20 years, do not forget AFTER ALL TAXES are paid?

I expect the answer within 2 hours - LOL