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Mortgage and Depreciation Expense and Tax Analysis - Essay Example

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Mortgage and Depreciation Expense and Tax Analysis Name: University: First scenario It is apparent that when house rates are down, many investors tend to venture into real estate business. However, this has its own connotations in regard to rate at, which consumers contribute in terms of paying for the house…
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Download file to see previous pages However, although the mortgage rate rises from 5% to 10% in the current scenario, the appreciation of houses that consumers can buy rises from 2% to 9%. This implies that demand for consumers wanting to purchase a house goes down. With such deliberations, it is apparent that an investor will find it difficult getting customers willing or able to buy a house. This becomes tricky unless the investors have some other sources of obtaining funds to service the mortgage. To many investors, availability of consumers to purchase their house is a vital factor to consider when mortgaging a house because rents collected from them highly help pay for the mortgage (Lank, 2003). In another dimension, it is argued that in any investment, it is important to venture into business when prices are low, and exit or dispose when prices are high. However, in this scenario, both interest rates and prices of housing are high. In this regard, investors need to consider other factors such as growth in the economy, local employment rates, and the growth of population in the area they wish to invest in. this means that if predictions about these factors turns out to be in his favor, the investor can go ahead with the mortgage. Second scenario If interest rates were able to be deducted from investor’s income, it is an option that many people would like to go for. However, since every investor aims at making a profit and avoid making losses, having interest rates for the mortgage being deducted from their income poses a great threat in servicing the mortgage and meeting other needs that are planned to be addressed by the income (Lank, 2003). Obviously, the investor has other obligations to meet with the income. So when his income starts servicing the mortgage, this means that some of his other projects would be at haul. However, this option is only applicable to first real estate investors who have not experience on serving their mortgage. When this happens, there is a possibility of the investor to service the mortgage on his own as he awaits such a time when prices goes up for him to dispose the house. However, this being the only option the investor has to service the mortgage; it is risky because unlike when the investor would have other means of servicing the mortgage, if consumers are unable to pay or even decides to move to other houses, the investor risks loosing the house unless they turn into their personal income to pay for it (Lank, 2003). All in all, if the income generated from the house can be able to pay for the mortgage, the better. This ensures that an investor’s other businesses or incomes are not disrupted to service the mortgage. Third scenario Deducting taxes from the income earned from the property can be argued to be the best option. The deduction is partial recovery of the cost of the property. Generally, when the property is able to take care of taxes, investors are assured of effective payment of the mortgage. This is unlike when they have to pay for the taxes from other sources. In fact, when taxes are deducted from the income generated from the property, the investor is in a better position to claim a tax reduction whenever there is depreciation of the property that generates the income (Lank, 2003). More importantly, when taxes are deducted from the income, the investor can take advantage of the internal revenue services provisions in the area where the property is located. Fourth scenario Every investor would be happy to have ...Download file to see next pagesRead More
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