**Guy A**

You make $75,000 per year.

You go extend yourself to buy a $425k house with a monthly mortgage of $2,000/month.

$1,400 of this mortgage payment is all interest payments. Total monthly expenses however, with maintenance, insurance, taxes etc is $3,300.

You go to file taxes in April. You do the math and you realize the total you spent on mortgage interest was $16,800 during the tax year.

To be able to take the mortgage tax deduction, you have to itemize. To itemize it means you can’t take the $6,300 standard deduction every single person in America is able to take.

So you deduct $16,800 from your gross income instead. (which is more)

Assuming (to make this simple) you are taxed at a flat 25% on your then taxable income of $58,200, the total taxes you owe are $14,550 for the previous year.

**Guy B**

You make $75,000 per year.

You pay $1,600 in rent each month.

You didn’t sign up for a mortgage, so when you file taxes, you take the standard $6,300 deduction leaving you with $68,700 in taxable income.

Your taxes paid for the year are $17,175 based on a simplified 25% tax on your income.

**Summary:**

Guy A pays $39,600 per year for the ability to pay $14,550 in taxes.

Guy B pays $19,200 per year for the ability to pay $17,175 in taxes.

Who has more money at the end of the year?

If guy A’s house appreciated at the national average of 3% ($12,750) would the answer change?

If you factored in the $150/month in gas saved for Guy B living closer to work and/or school, would the answer change?

If you factored in the downpayment being invested in the market instead ($12k) as well as the difference in the amount Guy B doesn’t have to pay in real estate expenes each month ($1,700), who has more money over 5 years?

(Note: guy A would have paid down his mortgage by $52,500 and possibly have $63,750 in appreciation in year 5. $1,700/month + $12k initially invested becomes $155k in 5 years in a low cost index fund.)

What about over 30 years?

(Note: over 30 years the $425k house would become an asset worth $1,031,586 vs the renter’s portfolio of $3.6million)

Assuming everything above stayed constant and Guy B paid an additional $800k in rental increase over those 30 years, who would have more money?

If Guy B used his higher cash flow to start a business that began netting him $260k/year during his 3rd year in business, then bought a similar house to Guy A in year 5, assuming the price of the house went up 3%/year, who would have a higher income?

Which one is likely to translate into a higher net worth to pass on to his kids?

Filed under: things Black folks don’t want to discuss.

Black people love using words and feelings in place of math when making “investment” decisions.)