Re: Rent to buy arrangements (Dick Margulis + Betty Grant)
From: gerhardleib (
Date: Mon, 24 Sep 2018 06:26:42 -0700 (PDT)
Betty & Dick:Renting may have benefits not usually thought of.  Namely, a 
landlord could pass on to the renter certain tax benefits that landlords get. 
The US tax code allows landlords to deduct from their income each year the 
amount of interest and the depreciation.  Depreciation per year equals building 
value divided by 27.5 years of useful life.
Search for "deduct depreciation from rental income" and you can read more about 
One website says:  "...the building value estimate is $125,000. Your 
depreciation expense that you take each year against rental income would be 
$125,000 divided by the IRS allowed 27.5 years of useful life (residential real 
estate) for a depreciation expense each year of $4,545."

This deduction will lower the landlord's taxes in many cases.  The savings 
could be given back to the renter. Over a few years, that would lower the cost 
of acquisition a bit.
Wait, there is more:  the savings give-back might be considered a donation, if 
you create a 501-c-3 nonprofit which helps low income people to afford a home, 
then (maybe) the landlord can may a donation to that nonprofit.  You may not 
have to create a 501-c-3 organization, if such a place already exists in your 
state.  Or maybe a state agency might accept the donation.  
This donation in turn could be another tax benefit for the landlord.  I say 
maybe, because I am not a tax lawyer and so, on this issue, I could be very 
much in error.
Plus one more issue for which you need to consult a tax expert:  When you sell 
the rental unit, the IRS has a recapture tax on the savings you got from 
depreciation.There are ways to avoid that tax, but now things get complicated.
I hope others on this mail server will chip in and set the record straight.
If you want a spreadsheet that shows the tax benefits of depreciation, feel 
free to contact me:tuttyk@aol.comGary Leib    (working to create cohousing in 
Providence, RI)
PS   Dick is correct that ownership is better, but only if your state gives big 
subsidies for first time home buyers.  Connecticut gave a big grant to Rocky 
Corner from a state bond issue. Other states are not able to do that,  or are 
not as generous.
-----Original Message-----
From: cohousing-l-request <cohousing-l-request [at]>
To: cohousing-l <cohousing-l [at]>
Sent: Mon, Sep 24, 2018 6:16 am

  1. Re: Rent to buy arrangements (Dick Margulis)
On 9/23/2018 12:09 AM, Betty Grant wrote:
> At Oakleigh Meadow Cohousing  in Eugene the idea of Rent-to Buy has 
> surfaced as a possible way to stretch our economic diversity. Our 
> concept: a current member or a group of current members purchase one or 
> more still available units, then set up a "rent-to-buy" option for an 
> interested party who cannot afford to buy-in outright.

We haven't been able to make the model work on paper. In order to build 
equity toward purchase, the monthly payment (excluding common charges, 
utilities, and taxes) would have to be about the same as a mortgage 
payment calculated for a zero-down-payment mortgage. 
So if someone could afford to buy a unit on these terms, they would be better 
off obtaining 
a down payment assistance grant of some sort and then buying the home 
And they would be far better off buying one of the subsidized affordable homes, 
because under the rent-to-own model, the owners would not qualify to purchase 
one of the affordable homes, so the 
model would only apply to market rate homes.

In short, rent-to-own would be a bad deal for anyone who would be in a position 
to think it might be an attractive option.

I'd love to learn that we're wrong and that this can indeed work, but I'd have 
to see the math.

Dick Margulis
Rocky Corner cohousing, Bethany CT

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