Newbie Alert! Tax Question / Analysis (FIRST POST Whoohoo!)

[Brandon Dietz]

Hi there, 

Thanks in advance for the read.

I am new to the real estate investing world and had a question / would love opinions on my current analysis!

This may be a stupid question so forgive my ignorance. 

Has anyone considered purchasing a property that just broke even from a cash flow perspective to assist in bringing your taxable income down.  

For example, I found a property in Ontario that I could see being a potential to get started and get my feet wet.  Not a home run, barely a base hit, and to be honest I would probably consider it a sac-fly. But at least it would get me started.  It is a legal triplex (1br, 2br, 3br) and I am trying to consider my options.  After analysis, it looks like the cashflow would be around -$41.63 a month for a 20 year mortgage but around $162.97 for a 25 year (I was thinking about trying to stick to the 20 year).  However, I also feel that my monthly expenses are a bit high, but I feel like it makes sense for the age of the property and its condition (Around $1,472).  So technically, if it can 'hold together' so to speak, it would be a pretty decent start. Seeing how I paid quite a bit in taxes last year, I have been considering this as my first "at bat", primarily because of the tax benefits. 

Listed Price $359,900

Planned purchase price $338,002 (98% of value minus estimated $15K reno cost)

20% Down $67,600.40

Mortgage term 20 years, 4.9% interest

Monthly Mortgage $1,769.63

Total Monthly Expenses $1,728 (Taxes/Vacancy/Insurance/Property Management/CapEx)

Percentage of renters in area 63%

Average Household Income $66,500 (30% of rent would be $1,662.50)

Total Planned Rental Cost (1br/2br/3br): $1,500/$1,600/$1,700 (still need to confirm what the current tenants are renting at, I know this could drastically change my cash flow figure)

Average Home Value: $270,000

Average Rental Comparisons in the area (1br/2br/3br): $1,510/$1,650/$1,750

2% Test = 0.95% (1.42% if room is rented)

Side note: This is also not including the fact that the 1 bedroom in the attic has been recently renovated and not currently rented, at this time I'm not trying to expect it to be rented right off the bat.

Let me know if you have any questions or want any clarification.  

Again I'm new so forgive me if I didn't explain thoroughly enough or in the right way. 

Cheers!

[Roy Cleeves]

Hi Brandon.  Is this in St. Thomas?

If so rents may go up with the VW battery plant coming and creating 3000 new jobs.

It seems like a great way to get started.  You will still be making money because of the mortgage pay down each month and the appreciation in value over time.

It may not save you on your taxes as the income gets added to you unless you put it in a company name rather than you personally (which I would recommend).  You see, even though it is negative cashflow - you don't get to write off the principal pay down each month which is probably have of the monthly payment.  So in the end you are adding to your income rather than subtracting.  

If you set it up in a business name then you pay less taxes on it and you can write off many of your expenses that apply to your real estate investment business and that will help you personally.

Best wishes