economics

War on Math

If you think that 32% of $71,456 a year is $6,000 a month, it explains why you still rent and don’t own a house. You can’t do simple arithmetic.

In Massachusetts, Florida and New York, Americans spend 32.9%, 32.6% and 31.2% of their income respectively on rent. Assuming you make $71,456 (the mean American income as of 2022), if you live in the Sunshine State, you’re actually sitting under a dark cloud: paying close to $6,000 a month in rent, based on those income and 32.9% figures.

I really don’t know where they are getting these “average” numbers from. Florida has a median household income of $61,777. (source: US Census bureau) When you want to borrow money for a home purchase, lenders want you to have a Debt to Mortgage ratio of no more than 35%, and a total Debt to Income ratio of no more than 50%. So that equates to a payment of $1650 per month for housing (35%) and all monthly debts that are no more than $2,575 per month. (including housing)

In most places, that gets you a pretty decent place to live. There are places claiming that the median one bedroom apartment in Florida costs are higher than they really are. Rent.com claims that renting a one bedroom in Miami costs an average of $3,250 a month. That’s about average in places like South Beach, but South Beach is a VERY expensive area where oceanfront condos regularly rent out for $25,000 a month. But if you don’t make a pile of money, don’t live in Miami Beach.

Closer to my home, there is the Orlando area. There are over 900 one bedroom apartments there for less than $1,600 a month. Go out to the suburbs, and the rents are even less. You can rent houses that are a short commute away, and pay $1,600 a month for a three bedroom house.

The problem is that people want luxury living in the most desirable areas and think it should be free. IF you are living on minimum wage, expect a minimum standard of living. My mom used to call that “Having a champagne and caviar taste on a beer and crackers budget.”

By Divemedic, ago

I have to work and save? Capitalism sucks!

As if more evidence were needed that we are seeing an entire generation that doesn’t understand money, we have young people claiming that them having the housing that they want at the price that they feel like paying. Yep, housing is a human right, but landlords making a profit is a luxury. Those are the exact terms used in this story.

Granted, the above story is from Australia, but the sentiments are identical to those here in the US, as evidenced by posts seen on social media where the latest generation vents that landlords should lose money because they are rich. They claim “they don’t own the properties at all most of the time, they just keep taking out equity from the last place and end up with 7 mortgages that need consistent renters.” Yes, that is how investing works. It’s called leveraging. You borrow money, invest that money, and turn a profit. The rate of return has to be higher than the cost of borrowing the money, or the investment isn’t worth making.

Proving that many legislators don’t understand economics either, the state of Connecticut is considering a law that would prohibit rent increases that are larger than the CPI plus 3%. The law would also make it illegal to evict a tenant when the lease expires. Since we all know that the CPI is complete and utter horse manure, it is easy to see where this will go. As expenses increase, they cut into profits. The landlord can’t ask the tenant to leave when the lease expires, meaning that a lease becomes a lifetime contract of involuntary servitude between the tenant and the landlord. All because housing is a “human right.”

This is nothing more than slavery disguised as human rights. They are demanding that property owners provide losers with a subsidized place to live. Communism in a nutshell.

The part that make me laugh as I realize the magical thinking here is the sentiment that “Get those houses back into the market, 70% of renters want to buy!” as if there are no houses out there for sale because landlords own them all. If renters wanted to buy, all they need is good credit, a steady job, and a grasp on managing money. They don’t have those things.

Many young people don’t grasp the way things are. They want to live in luxury without paying for it, without sacrifice, without work. They have decided that all they must do to have everything that they want is protest and vote for it. Working for what they want, being responsible with their money and saving for a down payment are all foreign concepts to them. As far as they are concerned, having to do those things means that capitalism has failed.

By Divemedic, ago

Tax Question II, the Search for More Money

If you get the movie reference in the title, bonus Internet points for you. Don’t use them all in one place.

So it seems like I have an answer to my tax problem from Monday. (I am posting this so I won’t lose my train of thought before I talk to the attorney on Thursday.) I would rather set a stack of $100 bills on fire than pay it to the IRS so crooked bastards in politics can use it to make themselves rich, so any way that I can avoid paying taxes that won’t see me land in Club Fed is a good idea, in my book.

The TL:DR version is that I need to sell the old house to an S corporation that my wife and I own. To do this, there are a few things that need to happen:

  • Form a Florida corporation. No sweat.
  • Within 2 months of forming, file an IRS form 2553 (pdf alert)
  • Get the old house appraised
  • Have the newly formed S corp buy the old home for the appraised value (since the sale was not an “arms length” sale, the appraisal proves it was being sold for fair market value)

This allows me to do two things: take the capitol gains deduction for the difference between the original purchase price and the appraised value that the S corp bought it for, and resets the cost basis for the property. This second part is nearly as important. The reason for that is called “Save Our Homes.” To understand Save our Homes, we have to first understand how Florida calculates property taxes.

Ad Valorem

In Florida, the county property appraiser is an elected position that estimates what your house is worth each year, called your “market value.” If your house is your primary residence, you can take a deduction called the “homestead exemption” of $50,000 from that market value. The result is called your “assessed value.” Each July, the property appraiser mails out the proposed value of each property to the property owner. If you don’t think that the value is fair, you have 30 days to appeal that valuation. Most people want it to be as low as possible, because that is the value that your taxes are based on.

The tax collector (also an elected position) charges a “millage rate” as an “ad valorem” property tax. Each “mill” is 0.1% of your home’s assessed value.

It seems complicated, but it really isn’t. For example, let’s say that your house has been deemed by the property appraiser’s office to have a fair market value of $100,000, and your county charges a property tax rate of ten mills. You would take the $100,000 market value and subtract your homestead exemption to arrive at an assessed value of $50,000. The tax of ten mills on that would make your property taxes to be $500 for the year. Clear so far? Good. It gets a bit more complicated.

Save Our Homes

Back in 1995, the voters of Florida passed an Amendment to the state Constitution that limits the annual increase in the assessed value of your homestead to the lesser of 3% or the consumer price index. Since real estate increases more than that in value each year, the longer you own your home, the better. The gap between the market value and the assessed value is called your “Save Our Homes” credit.

In most cases, you want the property appraiser to set your assessed value as low as possible. The only reason you don’t, is if you are about to move to a more expensive home. The reason is called portability. If you are moving from an old house to a new one, you can take your Save Our Homes credit with you. That can mean a significant tax savings.

So how will that help me?

As an example, let’s say that I paid $200,00 for a house, and 10 years later the tax assessor says it has a market value of $300,000. The Save Our Homes credit would be $31,000. If I buy a new house worth $400,000, that house would be assessed at $31,000 less. If the millage rate was ten, this would save me $310 a year in taxes. But what if I could get the tax assessor to admit that my house actually had a market value of $350,000? That would make my Save Our Homes credit $81,000 instead, and this would save me an additional $500 a year in property taxes at my new house.

It would seem to be a wash, since I am keeping the old house as a rental, but remember that the old house’s taxes are deductible as a business expense, and if the millage rate is higher for the new house’s location (which it is), the savings are even larger.

By Divemedic, ago

Voting With Feet

Hawaii and California are the two states with the lowest percentage of whites at 20 and 36 percent, respectively.

Hawaii started that way, with native Hawaiians being the majority. California is becoming increasingly less white as taxpayers flee the high taxes, crime, and general loonieness of the Golden State.

Mark Wahlberg lowered the asking price of his home by $32 million in order to cut ties with the place before the wealth taxes that would tax unrealized capital gains went into effect.

Please, California refugees, when you get to your new home state, don’t continue to vote for the same policies that made you flee California.

By Divemedic, ago

Tax Problem

My wife bought our current home 5 years before we met. It’s still deeded in her name only. When we move, we want to convert it into a rental.

The problem is this: That house has appreciated by $200k since she bought it, and unless we sell within 3 years of moving out, we will have to pay capital gains taxes on that $200k.

My position on this, is that we should sell it and use the proceeds to buy a different rental so we can reset the tax basis. My wife is vehemently opposed to this and wants to keep it. She remains convinced that there must be a way to avoid the capital gains taxes.

I have an appointment with a tax attorney this week, but my own research says that we either sell within 3 years of moving, or we will owe the taxes when we eventually sell, even if that sale is 15 years from now.

By Divemedic, ago

Childish, Magical Thinking

Watch this, and read some of the comments.

My initial thought was that it can’t be real. Then I reconsidered. This is the kind of childish, magical thinking that my children displayed when they were 8 or 9 years old. My daughter once asked me why I wouldn’t buy some expensive car or another. I replied that we didn’t have money for that. Her answer was, “Just go to the ATM and get more.”

That is the exact level of thinking displayed by this man-child, and the comment that followed. Just who is going to provide or pay for the basic, no frills life that you feel should be provided to you?

I had a similar conversation with my niece less than a year ago. My niece made the statement that people should get things that are necessary for free, because we all have a right to the necessities of life. She used feminine hygiene products as an example.

I pointed out to her that, since no one was paying for tampons, there would be no money to pay the people who worked in the tampon factory, so why would anyone work there for free? Her first reply was, “Wait! There is a tampon factory?”

I said, “Well just where do you think tampons come from? Is there a tampon tree somewhere?”

She replied, “Well, in that case, I suppose you could get women to work there and pay them with free tampons.”

I said, “What would that be worth? If everyone already gets tampons for free, what good is it to pay them with free tampons? So how are your employees going to eat, buy gas, or buy a house?”

She said, “That’s my point. Money is stupid. Why can’t everyone just trade and barter for stuff? Why should we all have to go to work just to be able to afford the things we need to live? The government can just print all of the money we need.”

I tried to explain money to her, but she didn’t get it. She is only 14, so I can excuse that. It’s her older sister, who is 21, that is evidence of an entire generation that doesn’t understand money. All they know is that they think somehow it’s their right to receive a living without having to do anything. This is why they all are demanding a living wage, or whatever they want to call it. It’s why they love socialism. They all want something for nothing.

There is a word to describe people working to provide things to people who aren’t doing a thing to earn what they receive, and that word is slavery.

By Divemedic, ago

Free Welfare House

Substitute teachers in Highland county make $119 a day. It’s a part time job, where they only work when there is a classroom needing a teacher for the day. They are only needed on days that there are students in the school in need of supervision, so at most they can work 180 days per year. That maxes out their earning potential at less than $25,000 a year.

One of those substitutes, Lashawn Kinsey, bought a house in Highlands County, Florida on January 13, 2021. She did it by getting a mortgage for $127,645, meaning that she made a down payment of $2,355. At the time of the mortgage, she had three kids, which placed her below the Federal poverty level of $26,500 for a family of four. I can’t confirm this, but she is almost certainly on public assistance. On top of that, she is a college student, meaning that we are likely paying for her education with Pell grants, because she is a black single mother.

It’s no surprise then that she was soon unable to make the payments, and had to seek assistance from the Florida homeowner assistance fund to avoid foreclosure. The state has been picking up the tab for her mortgage and utility payments, or at least they were until an administrative screw up caused payments to stop back in October.

I don’t feel sorry for anyone in this story, except the US taxpayer. As all of you know, I am shopping for a new home. In order to do so, I had to allow the bank to do a net worth audit, income verification, and credit check. How could a bank loan money to someone with a part time job and no assets? This sounds like the stuff that was going on in the early part of the 2000s that caused the mortgage collapse.

The fact that I had to work a full time and a part time job while going to school, so I could afford to pay tuition, then had to save money and build credit in order to be able to buy a house, while some black woman gets a free one at taxpayer expense must be all of that white privilege I keep hearing about.

By Divemedic, ago

If the Test Were Valid…

A group of 25 people were caught forging transcripts from shuttered south Florida nursing schools. They were using the forged transcripts in a scheme to show eligibility to sit for nursing licensing exams.

I’m torn on this. If the exam were a valid measure of the knowledge and skills of the nursing profession, then why does it matter whether or not you went to a nursing school? Alternatively, if passing grades in the school were a reliable indicator of proficiency, then why have a licensing exam?

This is simply a continuation of our licensing discussion. The transcript is a certification- the school is certifying that you are proficient. With that being the case, why require an exam? Are you saying that the school’s certification isn’t reliable? Or is it the exam that isn’t reliable?

Or is this simply a money making scheme that allows colleges, testing centers, and the state to rake in thousands of dollars from each nursing candidate?

There are nursing schools that charge upwards of $50,000 for an associate’s in nursing. Many nursing programs have completion rates that are below 50 percent. That is, less than half of the nursing students who begin the program actually complete it. On top of that, less than 60 percent of those who complete nursing programs in south Florida actually pass their certification exams. That means less than a third of students who begin nursing education in south Florida wind up becoming nurses.

My own nursing school had a 45 percent completion rate and a 90 percent exam pass rate. That works out to about 40 percent, and doesn’t include those students who began the prerequisites but were never admitted to the school.

That’s why there is such a nursing shortage. For every 100 students who begin the nursing pipeline, only about 25 of them actually become nurses.

By Divemedic, ago