Incentives
Why Golden Eagle Offers More Value
Golden Eagle’s HOA dues are only $65 per month and are scheduled to reduce to $40 per month. By comparison, many other gated subdivisions charge significantly higher monthly dues and probably have additional Mello-Ross property taxes. In comparison the HOA dues in Spanos Park in a gated complex with smaller but smaller lots are currently $450 per month. The $410 extra HOA payment is equivalent to a payment on a $140,000 loan. In other words my lots effectively cost $140,000 less then my competition that have high HOA dues. I also do not have Mello-Roos taxes.. This is explained more fully below.
In many subdivisions, every additional $400 per month in non-tax-deductible HOA dues is financially equivalent to the monthly interest-only payment on approximately $140,000 of mortgage debt ($399 per month, assuming a 3.42% after-tax deduction interest rate and interest only payment). Unlike a mortgage, HOA dues never go away and can increase by 4% or more annually.
Other subdivisions often have significant Mello-Roos taxes. .
Tax Advantages
Mortgage interest is tax-deductible.
Points paid at closing may also be deductible.
For buyers in a combined federal and state tax bracket of 40%, the effective after-tax mortgage interest rates drop substantially:
30-year loan at 6.5% → 3.9% net
15-year loan at 5.7% → 3.42% net
Example: At 3.42%, the after tax deduction interest only payment on $70,000 is just $199.50 per month.
Buying Power vs. Renting
Let’s compare a $1,000,000 home purchase:
With 20% down, the mortgage is $800,000.
After tax deductions, the effective monthly interest portion is:
About $2,600/month (30-year loan at 6.5%)
About $2,280/month (15-year loan at 5.7%)
Ask yourself: what can you rent for $2,280 to $2600/month plus the cost of property taxes and insurance that guarantees your rent will not increase, and that stops completely after 15 to 30 years?
Building Wealth Like a Retirement Account
On your first payment of a 15-year loan, a large portion ($2,821) is applied directly to principal. Each month, the amount going toward principal increases. This is similar to automatically funding a retirement account. And the interest portion of your payments, you get back as a tax deduction. Unlike rent, these payments build long-term equity and result in tax deductible interest.
Real Estate as a Safer, Enjoyable Investment
Renting a $400,000 home typically costs over $2,000/month, while renting an $850,000+ home in a gated community can exceed $6,000/month.
With today’s relatively low interest rates, owning upscale real estate is not only financially smart, it’s also safer than volatile stock market investments that can be influenced by hedge funds.
The inflation in a home’s value more than offsets other cost of home ownership such as insurance and property taxes.
And unlike stocks, your investment provides immediate lifestyle enjoyment.
Final Thought
Have your CPA confirm the numbers, but in my 50+ years of experience, investing in upper-end real estate, while also living in and enjoying it, has been the single best financial decision I’ve made. Golden Eagle offers an opportunity to do the same.