Forum Thread

Hampton Topics

(Hampton Specific)

0 messages

Updated

Off-Topic

Lakes Online Forum

83,605 messages

Updated 4/25/2024 9:33:24 PM

Boat Maintenance

Lakes Online Forum

5,193 messages

Updated 4/3/2024 3:47:36 AM

Hampton Fishing

(Hampton Specific)

0 messages

Updated

Jokes

Lakes Online Forum

4,169 messages

Updated 4/15/2024 11:05:05 PM

Sports

Lakes Online Forum

4,260 messages

Updated 3/24/2024 9:24:45 AM

Grilling & Recipes

Lakes Online Forum

2,976 messages

Updated 3/20/2024 11:53:43 PM

Tallapoosa River Topics

Lakes Online Forum

98 messages

Updated 4/15/2024 1:00:58 AM

Forum Usage Rules

Name:	Maverick -	Reply
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

Name:	Osms -	Reply
Subject:	Mav...
Date:	7/24/2006 8:26:41 PM

I love these scenarios and I won't interfere with FEB,BUT I must raise a couple of points.
1. You've got 30 year financing on purchase but sale in 20 years. I do not have the software, but the balance due is going to be hefty.
2. 10% appreciation is large for the full 20 year period. We've just gone thru a high appreciation period and are looking at a nearly flat time in the future. Seven-eight per cent may be more like it.
3. Property tax increases of 3% are way out of reality since property is reappraised each year at actual values and the taxes will far exceed 3% increases especially in the last ten years. You are assuming that politicians will stick everyone equally--ain't gonna happen.
4. You are assuming that APCO will sell that lot at some time during the 20 years. Gee, I hope so!! For your problem assume the sale at 18 years so that you can enjoy the 500K deduction at 20 years.
5. The big question is: How much would APCO sell the lot to you for? Remember last time it was a deal. The killer to the problem would be your unannounced price of $1.8M--ain't realistic.

Name:	Feb -	Reply
Subject:	Here is One For You Feb
Date:	7/24/2006 8:37:05 PM

My accountant is really busy right now since they are trying to complete tax returns they have extensions on. They said they would get back with me in December.

Few missing points include you will not be able to sell the leased lot unless you build on the lot. Who is going to leave a purchased lot setting there without building on the place.

There is also a senario of an out and out cash purchase which will also saves you a lot of money but robs your tax write-off on the deeded lot.

Right now, I am in process of repairing a wooden movement clock movement made in 1822, and I ask you to answer your own question or offer the pleasure to someone else.

Most of us will never have to worry since we will never sell it. I guess some Animal foundation will obtain it and auction it off after we are deceased.

Now, whichever way you can get on the Lake is your best investment. The real investment is your pleasure with enjoying the Lake.

Name:	Maverick -	Reply
Subject:	Here is One For You Feb
Date:	7/24/2006 8:53:21 PM

Answer is if the lot appreciates 5.88% per year then the buy and lease lot are a breakeven.

However, if you place say a $500k house on both lots and the house appreciates 3.5% per year on both lots then to break even after taxes on the buy lot scenario is approx an annual appreciation or 11.1% or a $300k lot has to be worth $2.2 million in 20 years.

Yes OSMS you are correct, I am using very simple assumptions, the point I am trying to make is leasing a lot makes a lot more sense than it did 2 years or so ago based on the current cost of purchasing a lot at todays prices.

Name:	Osms -	Reply
Subject:	Mav...
Date:	7/24/2006 10:30:05 PM

Very interesting. I thought it would be close. If you have time, I'd like to see the result given the change in variables that I listed above. Feb is so correct when he states that no matter how you get on the lake--it's the right thing to do.

Name:	Maverick -	Reply
Subject:	OSMS - Here is Answer
Date:	7/24/2006 11:20:51 PM

If you change the property tax variable on the buy lot scenario to say 75% of the appreciation factor on the purchased lot. After the property tax tax benefit the the lot appreciation factor really does not change significantly from the 11%.

But if you assume lets say a 7% annual appreciation factor over the next 20 years on a $300k purchased lot and a 3.5% appreciation factor on the $500k house you build on both the purchased or leased lot, then after 20 years (after taxes - assuming you sell when LTCG are 20% for federal and state and there is only a $500k exemption on personal residence gains) you have a lot more cash in the bank under the lease scenario as the apprecation on the deeded lot and house have eaten up your $500k exemption and you pay signifincatly more in LTCG and under the lease lot sceanrio the majority of the $500k exemption is used to offset the gain on the house as you do not own the property. Remember to get the $500k exemption your lake home must be your primary residence for at least 2 of the past 5 years. Otherwise, you tax consequnce can differ significantly from the above.

Also, under the buy vs lease scenario, I never factored in buying the leased lot in say year 15 as your tax basis would be close to FMV I would think therefore really not a whole lot of tax consequences to consider at year 15.

Basically, based upon my assumptions leased lots if you can really get a good lot for say a $5k premium and $350.00 per month plus annual CPI, is not a bad deal, by any means, if you plan on selling and not leaving to your children or favorite charity (depending on estate tax exmeptions at tim eof death) and the home you build on the leased lot will appreciate as much as a deeded lot home.

DISCLAIMER - PLEASE CONSULT YOUR TAX ADVISOR BEFORE MAKING ANY BUY vs. LEASE DECISION - LOL.

For a small fee I will be more than happy to revise my assumptions to meet your particular tax needs. AND YES THIS IS AN ADVERTISMENT, as I need to figure out someway to retire to the lake fulltime.

Name:	HOTROD -	Reply
Subject:	RETIRE TO THE LAKE
Date:	7/25/2006 7:13:49 AM

someone with your knowlege of finance could make a great living at the lake by helping people who are alread there stay there.

as many get older they will need longterm care and more cash for meds, travel etc.

if you put together a program that would let couples do reverse mortgages, purchase qualifying annuities, and provide long term care if necessary, and be able to be medicaid qualified immediately, if the need arose, it would permit them to use equity to enhance their lifestyle, travel, maybe rent or purchase a home in a warmer place for the months of dec, jan, feb.

if done properly this would permit these people to retain their lake house and pass it on to their children, or in the alternative to enjoy the equity they have obtained, in their life time. otherwise many will wind up with their home being used to finance their long term nursing home care.

this is already happening in fla and arizona.

Name:	boataholic -	Reply
Subject:	Here is One For You Feb
Date:	7/25/2006 7:18:53 AM

Problem #1 common to all such theoretical investments: Nobody is going to invest the difference for the next 30 years. Life happens.
#2: Some people expect a greatly reduced income in 20-30 years and thus prefer the sure thing of the paid for lake property vs. the unknown monthly lease payments in 30 years. Renew that lease in 30 years at 1000 a month and keep paying on it and I bet at some point in 50-60 years you and your heirs end up in the hole. I reckon that is why the power company takes a long term view and doesn't sell. Of course, if you keep your theoretical investment going for 60 years, you won't be in the hole, but that just proves these buy vs. invest arguments are always a comparison between reality and fantasy.

Leasing is probably the best way to get more for your money if you are only going to be on the lake for 10-15 years.

Name:	jawjagal -	Reply
Subject:	You guys are smart
Date:	7/25/2006 8:51:31 AM

Name:	Osms -	Reply
Subject:	RETIRE TO THE LAKE
Date:	7/25/2006 9:16:53 AM

Long term care is really a quagmire that never ends. I have assisted my father-in-law and sister with financial preparation for nursing home living and what a mess. Each state has different rules to quality for medicaid that require years(3+) of preparation. If you qualify then all is paid by medicaid--if not you're look at $4-6K/mo. I learned an interesting fact--in your average nursing home over 90% of patients are medicaid--no one else can afford it. Basically, the patient has to be penniless for three years to qualify for medicaid nursing home care.

By the way, Medicare does not cover any of the nursing home costs, unless you are in for a short re-hab and that's hard to get approved.

Name:	Osms -	Reply
Subject:	Mav..
Date:	7/25/2006 9:40:00 AM

Many thanks for your efforts. As we've both said future value analysis is fraught with unpredictable variables.

Your next job is to convince JIM that leasing is an option under ANY circumstances!! LOL

Name:	AUCATZ -	Reply
Subject:	Here is One For You Feb
Date:	7/25/2006 9:47:38 AM

Great scenarios, and ones that my husband and I are debating right now. He isn't 'for' leased lots, and I believe it would be a good deal. We are in our 50's, so we are looking at lake living for the next 20 years or so. My calculations go something like this:

I can get a really good leased lot for less than $400 per month. That's $4800/year max, $48,000 for 10 years, $480,000 for 20 years. I can build a nice house on the lot for about $300,000 (don't want a mansion, just a nice house).

If I buy a comparable lot, I'm going to pay $450,000 or so in the beginning. I'm going to have to get a loan for the lot, then struggle to afford to build the house. My cash outlay will be at least $80K for the down payment on the lot, then the cost of building the house. Within a year's time I'll have paid probably $200k just to get the lot and house financed, then I'm looking at payments of around $3000/month over 20 years.

Who in their 50's wants to begin owing this much money? Within 10 years, my income will decrease. I want retirement to ENJOY, not to owe a ton of money.

Just my view, and I know some of you financials wizards will disagree, but to live on the lake and enjoy retirement, leasing does make sense for some of us 'older' folks, lol.

Name:	Maverick -	Reply
Subject:	That is My Point
Date:	7/25/2006 11:18:32 AM

If you are looking for a 10 to 15 year investment on the lake or even 20 and then sell later in life when maint, etc becomes to much.

Then a lease today is a very viable option as compared to having to front or finance say $400k for a lot, then struggle to build say a $300 to $400k house, etc.

Name:	Osms -	Reply
Subject:	AUCATZ..
Date:	7/25/2006 11:29:49 AM

Your situation is exactly what we faced 4 years ago. We chose a lease lot and couldn't be happier with the results. Sometimes the choice is lease or not have a lake house--that makes the choice very simple.

Name:	AUCATZ -	Reply
Subject:	AUCATZ..
Date:	7/25/2006 11:51:56 AM

Well, we bought a condo in StillWaters last year. We live 50 miles from there and didn't want to buy a house until we decided to move to the lake. It was a great deal and the condo has appreciated almost 100% this last year. We are looking to sell the condo next year and want to get a place we can live in on the lake. In my (humble) opinion, with prices as they are now, unless we go very deep into debt, the only way we are going to afford a house is to either buy one on a leased lot or build one on a leased lot. Cross your fingers it works out for us, lol.

Name:	Feb -	Reply
Subject:	Here is One For You Feb
Date:	7/25/2006 1:50:26 PM

Maverick is very good with numbers, and it is obvious he enjoys his talent. It would of taken me signifcant time and effort to reach the exact or correct numbers (if ever). As Osms pointed out there are various factors that will change the numbers; therefore there will or may not be one exact correct number. It does not take more than common sense to come to the obvious which Maverick, Osms and I all agree upon.

If you will check my past post, I have always maintained, as my opinion, an APCO leased property is the second best way to the best of all worlds (being on Lake Martin). I intial attempted to win an APCO lease. Years ago many if not most all cabins on the Lake were on APCO leased lots.

Two months ago Ron Morgan (Lakedog Appraisals) had a detailed article in Lake Magazine that states almost exactly what is discussed in this thread. I would recommend anyone interested in obtaining Lake Martin property to go back and read the article. I think it is even available on the internet. I know Lake Magaizine is available on the web. Ron also has his business web site that you can contact him through for a copy. (I am in no way associated with Mr. Morgan other than a former customer).

I would agree with others posting in this thread, an APCO leased property is becoming more desirable all the time. For some, it maybe the only way to get on the Lake. Mr. Morgan states in my recent appraisal and in his article; "The demand exceeds the supply for deeded property on Lake Martin". I would take it long before a condo or some of the other properties claiming to be Lake property which are not in my personal opinion. Just because you can see the water or have acess to the water does not mean you are on the water.

I trust JIM as honest and respect his opinion. I think JIM's experience was not with a direct APCO lease. I am sure he has a reason for his opinion.

Name:	jawjagal -	Reply
Subject:	married an accountant
Date:	7/25/2006 2:09:51 PM

The first thing I asked him to do was to balance my checkbook. :-)

Name:	Feb -	Reply
Subject:	married an accountant
Date:	7/25/2006 2:50:23 PM

LOL. Maybe, you should of married a magician. You know I hate blonde jokes so as the one red head said to the other - I do not understand it, the bank said I was out of money, but I still have plenty of checks left.

Name:	JIM -	Reply
Subject:	married an accountant
Date:	7/25/2006 3:27:40 PM

The most one thing that I value is the friends that I had at the lake, and still do. Had two calls with a open invite last weekend. It was a good time and I miss it very much. Some times I partyed to much, but what the h`ell.
Like I say the reason that I sold is because the lot was sub leased. If I had held the lease I would have still been there.

Name:	Maverick -	Reply
Subject:	LMAO Good One Feb
Date:	7/25/2006 4:39:00 PM

Name:	AUCATZ -	Reply
Subject:	married an accountant
Date:	7/25/2006 6:44:48 PM

A sad tale, but it really happens. While I was working for a bank years ago, a young lady came into the bank to talk to the customer service department about her overdrafts on her checking account. This wasn't the first time the lady had been way overdrawn and the CS department was trying to explain to her that she couldn't keep doing this and keep her account with our bank. I honestly, truly heard the girl tell our CS rep this:

"When I came in last time about my NSF checks, you told me I could keep using my account and writing checks on it. I still have checks, so it is YOUR fault that I'm overdrawn!"

This is the truth, folks. I'll never forget it.

Name:	Maverick -	Reply
Subject:	Jaws Was that Lady You
Date:	7/25/2006 7:00:25 PM

Huh oh Im in trouble now, Feb made me do it I promise - LOL

Name:	jawjagal -	Reply
Subject:	Jaws Was that Lady You
Date:	7/25/2006 11:26:13 PM

It might as well have been. LOL,too.

Name:	roswellric -	Reply
Subject:	Depends ...
Date:	7/26/2006 3:02:35 PM

on how you look at the lease. Is it debt? You still have to make the payments just like debt. If it is $4800 per year that will finance about $700,000 worth of lot or $500,000 worth of lot plus real estate taxes. And you will have some amortization to make up for the escalating taxes.

I still say the lease is OK unless you get into a bidding war and have to front a lot of money to win the lease. Then the future value of the up front payment runs up the cost over the long run and I think you'll find the dog won't hunt.

hmmmm....where the heck is my old HP............

Name:	Feb -	Reply
Subject:	Unless Things Have Changed
Date:	7/26/2006 5:38:07 PM

There is no bidding war. It is done by sealed bids. You have to bid an amount above $2,000.00. When the envelopes are opened, the highest bid amount wins. It the top bid is $20,000.00 and there is another bid for $7,000.00 - then the high bid amount wins it for exactly $20,000.00. The winner and the winning amount is the top bidder at the top bid amount at the exact time of bid opening. In other words, there is no auctioning.

Name:	roswellric -	Reply
Subject:	I showed
Date:	7/27/2006 10:05:35 AM

my ignorance.....

Quick Links
Hampton News
Hampton Photos
Hampton Videos