Last week, I talked about the impact of steering, blockbusting, and redlining in real estate and how unethical practices were once legal and contributed to a lot of the issues we still see today in real estate. Now let’s talk about wealth through real estate.
Let me preface this by saying that I’m not a financial advisor, tax professional, or accountant. I’m just speaking from my personal and professional experience in real estate.
In simple terms, when you rent, you’re paying your landlord’s mortgage (and then some). At the end of your lease, rent may increase (very seldom decreases), and if you decide to move, you don’t get any money back.
When you own, most people pay a 30 year fixed rate mortgage meaning the amount doesn’t change (minus changes in taxes … more on that in a moment). Mortgage interest is a tax write-off (AKA you can lower the amount of money that you’re taxed on) meaning that a rent of $3000/mo is still more expensive to you than a mortgage PITI of $3000/mo. If you have equity built-up (AKA paid-off a portion of the principal in your mortgage) or if your home’s value has increased, you will have money leftover upon selling your house.
As you move-up into more expensive homes and/or start buying investment properties, your net worth also increases. You can take loans from your equity to then purchase more property and increase your portfolio or make improvements to increase the value of your home. This is a large part of why the rich seem to get richer while the middle class and poor can’t seem to catch-up, especially if you’re caught in the rent trap.
So you can imagine what a monumental accomplishment it is for a person to be the first home owner in a family’s history. However, if you’re in that situation (and even if you aren’t), it probably would never occur to you to appeal your property tax assessment, especially if you don’t have family/friends who would be able to advise you to do so. To quote the article:
“The values of black-owned homes tend to grow more slowly than values of white-owned ones. The white people who make up the vast majority of home buyers tend to avoid black neighborhoods, which cuts black sellers off from many potential buyers. That can drive down the sale price of black-owned homes.
“Given that difference in price appreciation, if an assessor assumes a black-owned home gains value as quickly as a white-owned home, the assessed value of the black-owned home will quickly outstrip its market value. Every year, the black family pays more in property taxes, even though the sales price of its home is not increasing as quickly. Nearby white families benefit from the opposite trend: Their homes increase in value more rapidly than their assessments, giving them an ever-growing tax break.
“‘[…] Sometimes you’re so glad to finally get somewhere that you don’t want to make a lot of noise and create any unwanted attention — you’re just grateful to have arrived and made it, and you pay your bills,” she said. “Even if you’re not happy about your property taxes, it doesn’t occur to you to question.’”
My point isn’t to address any political slant and/or agenda from the author and publishing agency or point fingers as D political party or R political party. My point is to explore current issues of discourse regarding social and racial inequalities that may not be a part of the news cycle in the world of real estate, a field that I love.
Thank you to Brent Mendelson from Capital Bank Mortgage for another excellent, thought-provoking article!