{"items": [{"author": "Jess", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941533327542", "anchor": "fb-941533327542", "service": "fb", "text": "Most inspiring pie chart I've seen in ages", "timestamp": "1526354115"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941533327542&reply_comment_id=941534545102", "anchor": "fb-941533327542_941534545102", "service": "fb", "text": "→ Aww, thanks!", "timestamp": "1526355029"}, {"author": "Zera", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941533327542&reply_comment_id=941542035092", "anchor": "fb-941533327542_941542035092", "service": "fb", "text": "→ Runner up?", "timestamp": "1526361436"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582", "anchor": "fb-941593187582", "service": "fb", "text": "The usual way to account for that is to have separate cash flow and accrual accountings. The accrual accounting will generally have to make a bunch of assumptions about the mortgage. You'd make a guess at depreciation as an expense, count interest payments as a separate interest expense, and count principal payments against your mortgage liability like any other paying off of debts already accrued.", "timestamp": "1526407578"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941595113722", "anchor": "fb-941593187582_941595113722", "service": "fb", "text": "→ Both of these standard accounting approaches are reasonable ways to handle it, but they're both kind of confusing to laypeople. For example, in cash based accounting it looks like we spent a huge amount on housing in 2015, since that's when we bought the house, but very little in 2017 with no major work. This is accurate, but doesn't give a good comparison to a counterfactual where we're renting instead.
Actually, maybe accrual based accounting does what I want, I'm just not sure how to use it?", "timestamp": "1526408922"}, {"author": "Phillip", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941607628642", "anchor": "fb-941593187582_941607628642", "service": "fb", "text": "→ Jeff Kaufman You attribute the spending to your housing asset. You then take a number (27.5 being what the IRS uses for residential real estate I would use either 25 or 30 ). Divide the investment by the useful life and allocate the result to your spending each year. Please remember that depreciation is allocation of your investment and has nothing to do with predicting the value of an asset (people often confuse this).", "timestamp": "1526416013"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941615507852", "anchor": "fb-941593187582_941615507852", "service": "fb", "text": "→ Phillip: We've spent a total of $1055k on the house ($800k purchase, $255k since) so depreciating [edit: I really mean amortizing] that over 30 years is $2930/month. Then add $1920/month of interest expense on the $600k mortgage, $700/month of property taxes and insurance, $600/month of utilities, and $550/month of other, and you get $6,700. Subtract $4,200 in rental income and you get $2,500/month. Which is surprisingly close to the $2,750 I calculated through the other method!
I think the reason it's close is that our mortgage is thirty years of equal payments: mostly interest at first, mostly principal at the end. So our final year will have close to $0 interest expense, and this method would say the cost was $2500-$1900 so $600, while the other method would still be saying $2,750/month.", "timestamp": "1526420759"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941640712342", "anchor": "fb-941593187582_941640712342", "service": "fb", "text": "→ Remember that if you're trying to do this for managerial (rather than compliance) purposes, if you're counting depreciation as a cost, then repairs are capital improvements and should be accounted for as such, not as expenses, much like the original purchase should be accounted for as an investment (trading money for a house of equal value), not an expense.
If you're doing it that way, you probably want to track whether the net changes to the implied value of the house are moving in the right direction relative to the actual condition of the house, and adjust your depreciation schedule accordingly.", "timestamp": "1526429065"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941640867032", "anchor": "fb-941593187582_941640867032", "service": "fb", "text": "→ Oh, it's actually pretty reasonable from an accounting perspective to treat the interest expense as changing over time - it's actually expensive to borrow money! From a *financial* perspective, you'd want to balance that against cost of capital, i.e. the opportunity cost of having equity in the house vs other assets that might appreciate faster.", "timestamp": "1526429216"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941641450862", "anchor": "fb-941593187582_941641450862", "service": "fb", "text": "→ What I'd like to get out of this process is something like \"if a company was buying the house, handling repairs and utilities, taking no profit, and charging us rent, what would that rent be?\"", "timestamp": "1526429641"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941660931822", "anchor": "fb-941593187582_941660931822", "service": "fb", "text": "→ Ah. That's actually a lot simpler and doesn't depend on the way you financed the house at all. You can assume that a business would take out the max secured loan available, and then assume a normal corporate cost of capital for the remaining equity.
20% loan-to-value ratio is a typical ceiling. 4% would be a typical corporate mortgage interest rate, and 10% is a typical corporate cost of capital. So, you can assume that it costs a business 20% * 10% + 80% * 4% = 5.2% of the value of the house each year to own it. Then add depreciation, and presumably the other expenses are similar to the ones you actually have.", "timestamp": "1526439089"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941593187582&reply_comment_id=941666076512", "anchor": "fb-941593187582_941666076512", "service": "fb", "text": "→ I think depreciation isn't a major component, since so much of the cost of land and the next major cost is structure that should last indefinitely with reasonable upkeep.
$1055k * 5.2% / 12 is $4,571. Add property taxes, insurance, utilities, and other and we have $6,421. Subtract $4,200 in rental income and you get $2,220/month.", "timestamp": "1526440581"}, {"author": "Andrew", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941603965982", "anchor": "fb-941603965982", "service": "fb", "text": "How do you account for things you pay cash for? Do you keep all receipts and enter them online?", "timestamp": "1526413595"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=941603965982&reply_comment_id=941605532842", "anchor": "fb-941603965982_941605532842", "service": "fb", "text": "→ I jot them down in a note keeping app when I pay and then enter them when I have time.
The combination of 2% cash back and easier record keeping pushes me to credit cards for most things though.", "timestamp": "1526414558"}, {"author": "Mark", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=10100102194398442", "anchor": "fb-10100102194398442", "service": "fb", "text": "Thanks for sharing. I very much appreciate your intent and your transparency. We have a similar desire. But I'm a little confused, so if you don't mind me asking...
If your annual income is ~$283k, I'm surprised that you are paying $4,150/mo ($49,800/yr) in taxes. If you're donating half your income (and I assume it's all tax deductible), that leaves $142k annual income. That is similar to our household, and we only pay ~15k in taxes. 19k if you include personal property. Can I ask how it ends up being $49,800/yr in taxes?", "timestamp": "1563239926"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=10100102194398442&reply_comment_id=10100102196783662", "anchor": "fb-10100102194398442_10100102196783662", "service": "fb", "text": "→ Mark are you counting state tax (which doesn't let you deduct charitable contributions in MA), social security, and medicare tax, or just federal income tax?", "timestamp": "1563240748"}, {"author": "Mark", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=10100102194398442&reply_comment_id=10100102199278662", "anchor": "fb-10100102194398442_10100102199278662", "service": "fb", "text": "→ Ah, that makes a little more sense. Thanks.", "timestamp": "1563242328"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=10100102194398442&reply_comment_id=10100102205556082", "anchor": "fb-10100102194398442_10100102205556082", "service": "fb", "text": "→ You could also plausibly include property tax in this number, but we've put it under \"housing\"", "timestamp": "1563246153"}, {"author": "Andrew", "source_link": "https://www.facebook.com/jefftk/posts/941520553142?comment_id=10100102201589032", "anchor": "fb-10100102201589032", "service": "fb", "text": "Donations at 50%? 11800/mo will get you a nearly paid off rental property every year in some parts of the US every year. Go over to the dark side, FIRE. Once you're free of Google, you can still do good for the world...", "timestamp": "1563243688"}]}