Housing Authority Bonds

  

Categories: Bonds

Municipal bonds are debt securities issued by local governments. Often they have specific purposes. Build a hospital. Fill in some potholes. Construct a sports stadium for a billionaire, so a bunch of millionaires can play a kids' game. That kind of thing.

Housing authority bonds target the construction of subsidized housing. The local or state governments issuing the bonds will sell the securities to investors, who get paid interest for their trouble.

Then the governments use the money raised to build rental properties, usually for low-income residents. It's a way to create subsidized housing without raising near-term taxes.

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Finance: Who buys muni bonds?1 Views

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Finance allah shmoop who buys communi bonds who buys them

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rich people or rather people earning enough active income such

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that their marginal tax rates are very high Munich bonds

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are tax free so in practice they tend to offer

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lower net yields than taxable corporate bonds Okay so what's

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the math here Well if your ah high earner i'ii

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europe bo tox correction surgeon or an ambulance chasing attorney

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from new york Or an all star nfl linebacker with

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no felony drug or spousal battery convictions Yeah a few

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of those actually do exist Well then it's likely that

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you pay the highest marginal tax rates They seem to

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change every election cycle so will generalize here so we

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don't have to redo this video every two to four

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years At the highest rates you'll pay about thirty five

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percent federal tax and twelve ish percent state tax and

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usually an override for some other political initiative like obama

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care or the wall fund or the no child left

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behind fund at the zune fund Beyond those total them

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up And let's say you pay fifty percent marginal tax

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on your last in a few million bucks in earnings

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and let's also say for illustrative purposes here assumed that

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the bonds we are comparing our of equivalent risk and

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duration compared with these immunities right Let's say so They're

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both a rated and they come due in on a

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half a dozen years Well the corporate bonds than yield

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us a seven point two percent and the parallel nooni

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bond yields four percent So then which bond has the

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higher value to its high tax paying owner Well if

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you're paying fifty percent tax on the seven point two

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percent corporate bond than you the nun convicted linebacker pay

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net after tax fifty percent of seven point two percent

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interest or three point six percent The munich carries no

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tax so it's gross is net meaning the four percent

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yield of them unibond produces point four percent a year

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Better yield after taxes then does the corporate bond So

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what if you were a sir school teacher not rich

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paying this a twenty percent marginal tax instead of fifty

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Well then you'd go for the corporate bond It yields

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gross seven point two percent But after your twenty percent

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tax the yield after tax on that corporate to you

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mrs whitehead homeroom number fourteen teacher of health and sex

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ed to simply horny teams Yes your yield then is

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point eight times seven point two or five point seven

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six percent way higher than the muniz yield of four

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percent The differences here in yield from a corporate versus

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immune e maybe don't seem like a lot but over

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time they really add up So once you make your

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