All Forum Posts by: Jon Schwartz

Bill, I mean "small L" liberalism, as in the liberal end of America's current political spectrum. Anyway, I imagine the men you reference also wanted to transfer their morality onto others, no? Did they abhor slavery but not act to end it? Did they abhor nationalism and write nothing to combat it?

 As to your second question, I'd say it's a gross comparison. American gave $449.64B to charities while paying $3.462T in taxes in 2019 (sources: https://www.nptrust.org/philanthropic-resources/charitable-giving-statistics/#:~:text=General%20Philanthropy,a%205.1%25%20increase%20from%202018.&text=Corporate%20giving%20in%202019%20increased,a%2013.4%25%20increase%20from%202018.&text=Foundation%20giving%20in%202019%20increased,a%202.5%25%20increase%20from%202018., https://www.cbo.gov/system/files/2019-11/55824-CBO-MBR-FY19.pdf). Of that tax revenue, $661B went to non-defense, non-entitlement spending (source: https://www.cbo.gov/publication/56324). So that gap between charitable giving and non-defense discretionary spending isn't massive. Good catch!

Hey Bryan!

Good on you for getting started in the right direction!

There's a lot to unpack... I'm sending you a PM.

But for anybody who reads this, the long and short of it is: you can househack a house, a duplex, a triplex, or a fourplex.

The key financial metric is to subtract rental income from PITI and expenses to see how cheaply you can live while earning equity in principal paydown and appreciation.

Research the FHA loan: it's your best friend when you're househacking. Aim for 10% down.

In Southern California, target a property that will be *at least* cashflow neutral when you move out in a couple of years to repeat!

Best,

Jon

Bill, I greatly appreciate your civility. I'm a fan of any guy who knows how to wear a blue blazer well!

Good points, good points! I'm interested in answering your question.

I'm trying to find a way to say this... I'm interested in transferring my morality onto others because I'm human. I'm politically liberal, so you can guess the other social and economic issues I want to transfer onto others, as well. We as Americans are fortunate to live in a political system where individuals fight for their priorities, fight to elect those who will enact them, etc. etc. etc. It's totally fair as an economically conservative person to disagree with me just as a socially conservative person will disagree me with on other issues. We'll settle it at the ballot box, right?

Furthermore, the effects of progressive taxation dwarf the effects of charitable giving. Charities can help individuals, small communities, etc. I'd say only the government has the ability to combat the staggering wealth inequality that has developed in America over the last half century. I think it's for the greater good of the whole country if we have less wealth inequality.

I know I'm throwing out some liberal ideas; yes, I'm a real-estate investor and a liberal!

Steve, the crime rate in California is half what it was in 1980 (source: https://www.ppic.org/publication/crime-trends-in-california/#:~:text=California's%20violent%20crime%20rate%20rose,levels%20in%20the%20late%201960s.). Does that count as something the government has improved with tax money? Are you ready to consider new taxes.

I'm young? How old are you, Steve? 

Todd, I always appreciate a cordial disagreement. Thanks so much!

First off, if we have differing views on what's fair, I'm defining not knocking yours as inferior on any metric. I value your viewpoint.

Just want to throw out my two cents on your last point there: I have a brother-in-law, a conservative Republican, who frequently says, "I'd be happy to pay taxes if the government actually did something worthwhile with the money." Frankly, I think that's an excuse for not wanting to pay taxes at all. Isn't educating children worth taxes? Aren't police worth taxes? We can debate how far our social programs should go, but there's obviously worth to a portion of them.

To your point more specifically: your church or a needy individual can surely make a dollar go further than the government. There's a lot of overhead with the government. And if everybody of there own volition contributed 10-40% of their income to a charitable organization run by volunteers for the administration of social services, yeah, our financial contribution to the greater American good would go a lot further. But an argument against government overhead doesn't negate the need for government.

Hey Todd!

Thanks for the well-reasoned, sourced, and thoughtful comment!

You're totally right that my argument came off as "I support it because it's not coming out of my pocket." I was being tongue-in-cheek in my initial response, and I definitely gave the impression you took. Guilty as charged!

My truer sentiment is simply that I support progressive taxation -- "progressive" not meaning "liberal," but "progressive" meaning that higher earners progressively pay a larger percentage of their income to taxes.

Before anybody hits me with a ridiculous slippery slope rebuttal, let me say that I do believe all policy should be within reason. A 0.4% surcharge tax on the extremely wealthy is not the same as raising all tax brackets by 40%. Let's that scream platitudes from the fringes of the debate; let's talk realities.

The problematic truth is that low earners don't have enough money to generate any savings. Everything they earn, they spend to survive in this country. The savings rate reaches 0% as earners reach $40K in annual income; people who earn under $40K/year have negative savings rates; by $80K, an individual's savings rate is 22%; over $250K in annual income and one's savings rate averages 42% (source: https://dqydj.com/how-much-do-people-save-by-income/). You know as well as I that, without the ability to save, a person doesn't have the ability to prepare for retirement, much less "get ahead."

So I think it's moral and community-minded to implement a progressive tax strategy that takes more from the very wealthy and gives a break to the working poor. I know I pay more in taxes than many others while utilizing relatively few of the public services I fund; I'm okay with that.

One more thought: you calculate that your "fair" share is $2000. What's fair, though? Is it a simple math problem? Is there a moral element to fairness? I'd say there is.

That's 1.58% of Americans, and unfortunately, it's not the top 1.58% of earners. AMT has its own problems, which Congress has tried to address by indexing the exemption to inflation.

Comparing an additional 0.4% tax on the highest 0.076% of earners in response to a pandemic and its drain on government revenue does not call for the "if they aren't coming me, then I'm safe" logic fallacy (ie, the slippery slope fallacy).

My answer is also no.

When you buy residential property (1-4 units) with a residential loan, you are approved on your DTI ratio -- the radio of your debts (like mortgage, car payment, credit card payment) to your income. Generally, your debts can't be more than 50% of your income, at most. Some loan programs allow you to count a portion of the rents you'll be collecting toward your income, but I can't think of a scenario in which you're househacking the property the portion of rents counted can cover your entire income requirement.

Just as an example, I'm looking to buy an expensive fourplex here in LA. Because it's residential property and I'm pursuing a residential loan, my income has to qualify to pay the mortgage -- even though the rental income covers the mortgage!

So get your income out from under the spotlight, you'd have to pursue a commercial loan. A commercial loan looks at the property or business and determines whether its income can cover the loan repayment. However, good luck getting a commercial loan on a triplex! It's not likely to happen.

Good luck!

Andrew, great question!

I'm also in CA. Where in CA are you? There are parts of the state where $25K is enough to get started -- with a househack.

I recommend you househack a home or a duplex where you live. With an FHA or NACA loan, you can get into a property with a single-digit or even no down payment. If you househack a home, you'll be renting out the other bedrooms to friends or qualified tenants. If you househack a duplex, you live in one unit and rent the other. The reason to pursue this strategy is that it lowers your cost of living, allowing you save more money while the property is appreciating and the loan principle is being paid down. These three elements together are really powerful for building equity.

I wouldn't mail out a $25K check for a turnkey in the Midwest. When you buy a turnkey, you're sacrificing equity for convenience. When you buy in the Midwest, you're sacrificing appreciating for cashflow. If you use leverage to buy a $100K turnkey property, you might see $100/month in cashflow at best. In a couple of years, the property will be worth about what you paid for it. Holistically, it's not a great investment.

Going back to the househack example, you won't see any cashflow now, but you'll likely be paying less per month than your current rent. An FHA loan allows you to buy a bigger property, so your principal paydown and appreciation will be outsized, and depending on where in CA you are, your gain from appreciation could be significant. After a few years, you'll have enough equity in the property to sell or refinance and really payroll the next step of your investing career.

So, back to the first question: where in CA are you? Let's explore options around there.

Dennis, great question, and smart of you to ask it directly to us as individuals. Let's talk about this new tax in real terms instead of throwing around platitudes!

This tax will be levied on roughly 30,000 of the 39,510,000 residents of California. That's that top 0.076% of the state (source: https://sanfrancisco.cbslocal.com/2020/08/13/california-legislature-proposes-first-in-the-nation-wealth-tax/). Sadly, I'm not in the top 0.076% of earners. In fact, I'm only in the top 4% of CA earners (I used this website: https://dqydj.com/income-percentile-by-state-calculator/).

This tax will produce $7.5B (that's a "B" for billion) in revenue for CA (same source as above).

I don't know about you, but I've been noticing all this talk about revenue shortages for states and cities as a result of COVID, and I've begun to worry about two things: my property taxes and my community. I'm worried my property taxes will go up because the city, county, and state will need more revenue to fund public services. And I'm worried my community will suffer because my local schools, police departments, fire departments, social services, road repair crews, graffiti abatement crews (this is LA, after all), adult education programs, job placement programs, etc., will receive less funding.

So this tax abates my fears. I think my property taxes are less likely to get hiked, and I think my community will likely benefit from this tax. That's how this tax affects me, and in response, I'll email my state representatives and voice my support.

Great post!