Imputed rent is the economic theory of imputation applied to real estate: that the value of a good is more a matter what the buyer is willing to pay than the cost the seller incurs to create it. In this case, market rents are used to estimate the value to the property owner. Thus, for example if one could rent a similar property for less than the costs, one is losing money on the deal and vice versa. While the idea of imputed rent applies to any capital good, it is most commonly used in reference to home ownership.
More formally, in owner-occupancy, the landlord-tenant relationship is short-circuited. Consider a model: two people, A and B, each of whom owns property. If A lives in B's property, and B lives in A's, two financial transactions take place: each pays rent to the other. But if A and B are both owner occupiers, no money changes hands even though the same economic relationships exists; there are still two owners and two occupiers, but the transactions between them no longer go through the market. The amount that would have changed hands had the owner and occupier been different persons is called the imputed rent.
Read more about Imputed Rent: Effects of Owner-occupancy
Famous quotes containing the words imputed and/or rent:
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