Why would I NOT get a 35 year amort.?

[RedlineBrett]

QUOTE (ThomasBeyer @ Oct 28 2010, 10:24 PM) Try to get to a point very quickly were you have NO MORTGAGE .. just a line of credit.

Definitely agree with this when speaking about your primary.

With regards to 25 vs 35, well we always take the 35 and usually recommend our clients do the same. It all comes down to the discipline of the borrower but the advanced investor should opt for greater flexibility.

 

[Thomas Beyer]

QUOTE (RedlineBrett @ Oct 29 2010, 05:52 AM) .. but the advanced investor should opt for greater flexibility.
indeed .. BUT ADD: AND HAVE THE DISCIPLINE TO USE THIS FLEXIBILITY ..

 

[Sherilynn]

QUOTE (gwasser @ Oct 28 2010, 10:05 PM) The same with money that you receive from your tenant and that you reinvest to pay down your mortgage. Just because it is reinvested to pay down the mortgage does not make it tax free. It is part of your net income and you will have to pay tax on this every year.

Maybe a true accountant can clarify this. Because either I pay too much tax or some of you pay too little.

Here is my understanding of it:

Paydown does not affect net income as mortgage principle payments are not a deductible expense. Net income is gross income (the rent) minus the expenses (repairs, interest, etc...NOT mortgage principle payments). Since you pay income taxes based on your net income not including mortgage paydown, then it shouldn`t have any direct affect on taxes if you paydown $10 or $1000 on your mortgage.

The only difference would be that you could have lower interest payment next time which would reduce your deductible expenses, thereby increasing your tax bill.

Regards,
Sherilynn

 

[gwasser]

QUOTE (Sherilynn @ Oct 29 2010, 08:10 PM) Here is my understanding of it:

Paydown does not affect net income as mortgage principle payments are not a deductible expense. Net income is gross income (the rent) minus the expenses (repairs, interest, etc...NOT mortgage principle payments). Since you pay income taxes based on your net income not including mortgage paydown, then it shouldn`t have any direct affect on taxes if you paydown $10 or $1000 on your mortgage.

The only difference would be that you could have lower interest payment next time which would reduce your deductible expenses, thereby increasing your tax bill.

Regards,
Sherilynn


Net OPERATING income is gross income minus operating expenses (the ones you list). When you deduct your mortgage payments what is left is your Net Cash Flow not your Net Income. Anyway, I think we are going in circles. I`ll check it with my accountant for my situation just to be sure that I haven`t paid too much in taxes.


Thanks for your comments on this issue.

 

[Mecheng]

QUOTE (Sherilynn @ Oct 29 2010, 07:10 PM) Here is my understanding of it:

Paydown does not affect net income as mortgage principle payments are not a deductible expense. Net income is gross income (the rent) minus the expenses (repairs, interest, etc...NOT mortgage principle payments). Since you pay income taxes based on your net income not including mortgage paydown, then it shouldn`t have any direct affect on taxes if you paydown $10 or $1000 on your mortgage.

The only difference would be that you could have lower interest payment next time which would reduce your deductible expenses, thereby increasing your tax bill.

Regards,
Sherilynn


QUOTE (gwasser @ Oct 30 2010, 07:22 AM) Net OPERATING income is gross income minus operating expenses (the ones you list). When you deduct your mortgage payments what is left is your Net Cash Flow not your Net Income. Anyway, I think we are going in circles. I`ll check it with my accountant for my situation just to be sure that I haven`t paid too much in taxes.


Thanks for your comments on this issue.

gwasser, you are talking about operating income while Sherilynn is talking about taxable income. They are not the same thing.
Taxable income is exactly as she described, there is no section on the tax form to calculate principal mortgage paydown and pay tax on it at a yearly basis. Mortgage paydown only becomes income and taxable after you sell.

Example: Buy a house for $300000, pay the mortgage down $50000, and sell for $240000.
You receive no income from mortgage paydown so you had no reason to pay tax on it.

 

[Mecheng]

QUOTE (gwasser @ Oct 28 2010, 09:05 PM) The same with money that you receive from your tenant and that you reinvest to pay down your mortgage. Just because it is reinvested to pay down the mortgage does not make it tax free. It is part of your net income and you will have to pay tax on this every year.

This is an interesting point if you are talking about making additional mortgage payments to further reduce your debt.

Example: You put $30000 down payment and over the years make an additional mortgage payments of $10000.
You sell for a $60000 profit (say $20K is principal mortgage paydown and $40K is appreciation).
You get a cheque at closing for $100000 (assuming no closing cost), would you expect to pay tax on $60K, $70K or $100K ???
Your down payment and additional mortgage payment are you`re out of pocket, after tax dollars.
Even if the additional payment is from property operating income, it is taxed yearly (you would be reinvesting after tax dollars not pretax dollars) and should not be tax again at sale.
Logically it should just be on the $60K profit but I`m sure CRA has some overly complication way of calculating this.

 

[Thomas Beyer]

No one pays taxes on rental income usually as you DEPRECIATE the asset by 4% .. as this CCA (capital cost allowance) or depreciation usually BY FAR exceeds the net income.

Taxes are therefor irrelevant discussion points.

You pay taxes on asset sale only (usually, on a gain) ... unless your mortgage is very low .. say below 40% loan-to-value !

Cash-flow is the only consideration when discussing 25 or 30 or 35 year amortization.

Try to not go 35 year amortization as it pays down the mortgage too slowly and fools one into thinking an asset "cash flows".

Analyze it with a 6% mortgage at 25 years. If it doesn`t cash flow at that level, your mortgage is too high !!

 

[housingrental]

Analyze it with a 6% mortgage at 25 years. If it doesn`t cash flow at that level, your mortgage is too high !! I`m not disagreeing and aim for something more stringent but if people actually did this it would be the end of 99% of sales currently

 

[Thomas Beyer]

QUOTE (housingrental @ Oct 30 2010, 12:55 PM) Analyze it with a 6% mortgage at 25 years. If it doesn`t cash flow at that level, your mortgage is too high !! I`m not disagreeing and aim for something more stringent but if people actually did this it would be the end of 99% of sales currently
I hope you`re wrong .. As 99% would imply only 1% is properly levered and actually cash-flowing ..