Depreciation - How to Account for on Income Statement?

[Billy Raz]

Hi,

I'm working on the financials section of my BP.  How do you calculate and include depreciation on the income statements?

If I use a depreciation calculator and calculate an annualized deprecation amount of $3k, should I add this is a month gain...  I'm confused.  

The properties will be SFR with a buy and hold.

Thanks,

-billy

[Bill Jacobsen]

Depreciation is an expense and as such it reduces your income on a properly prepared income statement.  It is also a reduction on your tax return.  Because of this most buy and holds show little income or even negative income.  The Government get their taxes when you sell the house because the basis or value has been depreciated down even though the house has increased in value.

When analyzing property most investors do not include depreciation. They try to project NOI and a proper cap rate.

I hope I have helped rather than confused you.

Good Luck.

Bill