Everyone pays when you tax the "rich"
There is a lot of talk these days about taxing the rich, a misconception that trickles down to the very same folks who vote to tax the rich.
Take the proposed school construction bond election coming up in February, for example. Yes the landlords will pay more if the bonds are approved, but the tax will be passed on to the renter.
Renters do pay property taxes.
It would probably surprise most folks to realize that the greatest number of landlords in the US only own one rental. That isn't saying the greatest number of rentals, only the greatest number of landlords.
Most of the single property landlords purchased a home then later purchased a bigger and better home, opting to keep their old home for supplemental income, often to help qualify the necessary income for their new home bank loan.
In order to understand how and why the trickle down taxes are paid by the tenants or consumers it is first necessary to understand how every business works.
When rental expenses are too high as a result of increased cost for tenant damages and abuse, insurance, maintenance, appliances, taxes, and levies, the landlord does not realize any interest or return on investment. In order to stay in business and continue providing housing, the landlord must increase the rent.
When you vote for a levy or tax increase, you are voting for your rent to increase too.
A landlord is an investor who chooses to put his money into rental property rather than a savings account. Net rent income is the landlord's 'savings account' interest on his investment. Net rent is the money left after paying for insurance, taxes, repairs, and maintenance.
The rental business is seldom about cash flow but rather about long-term investment returns with the goal of realizing the full benefit of that income, mostly for retirement purposes.
Rental property is a long term investment, often taking 15-20 years to pay off. Loan interest increases the property cost. The longer it takes to pay off the loan, the more the property costs. Twenty-year loans can double the cost of the property.
To further improve on their investment, landlords often accelerate their loan payments with a goal of paying off in 15 years or less, reducing the total cost. Landlords do this by taking part of their paycheck and paying extra on that loan just like you would put part of your paycheck into a savings account or retirement fund.
Accelerated payoff is necessary for investment recovery too. Typically, property values increase over time but, when the total cost of property, including interest and other capital expense (like a new roof), exceeds the sale value, there can be a loss of investment dollars. Few landlords realize enough income during the payment years to avoid supplementing the loan payments from their regular job paycheck.
Often I hear tenants say they think they should get more service, new carpet, new appliances, new paint, etc. for the rent they pay. Seldom do they realize that their rent does not cover the cost of the landlord's investment, rather only the expenses and hopefully some net-rent interest income on that investment.
Only when the property is sold does the landlord actually recover his investment, the same as if a person withdrew funds from a savings or retirement account.
So why become a landlord (or business owner)? With good management and expense control, the landlord has the potential to receive a higher rate of return on their investment than a bank savings account and, in poor or volatile economic times, property affords more financial security than money in a bank.
I've been asked why invest when 65 percent of the rent just pays the taxes and insurance. The only answer I can give is that 35 percent (less other expenses) of something is better than 100 percent of nothing.
Dale Hellewell
Royal City