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Updated almost 9 years ago, 02/10/2016
Learning and from Michigan
Hello BP community,
I am new to investing and have many questions but the one I am currently wrestling with is the fact that I want to understand figuring cash flow. I have read some books, blog posts, and am just curious. When collecting rent, is there an average amount you would set aside for "income taxes?" I know there are many deductions one can take with real estate investing, but is there a rough number based on a $80,000 property that's gross income is $1,675 a month? There are 4 units and I am just trying to learn to asses a property right now. So when I am ready I can get a more accurate number when trying to figure cash flow.
Also what is the least amount you would want to make per unit in cash flow before you would deem a property a bad deal?
Hello! Most communities in Michigan have the taxes online. It might cost you a couple of dollars but I pay for it all the time when I am very interested in a property. Add the summer and winter taxes together, take that number and divide by 12. If you use the BP calculator it divides it up for you.
My goal this time around is to get at least $100 a door but I am shooting for $200 or more.
Don't forget your probably looking at 100% homestead cost. Add about 35% to cost
Sorry... I misread the "income" tax! Forget most of what I just posted...
I would expect that on paper you will likely show a loss as long as you document EVERYTHING. On a buy and hold it should benefit you quite a bit assuming you have a W2 job also. A tax expert would be better suited to answer this,
Welcome to Bigger Pockets. Consider sending messages to other members for specific guidance.
Thank you for all of your advice Raffaelle Andriolo you mentioned 100% homestead and to add 35% to cost? Are you just saying with me living there it would remove 1 units income? I would put in money at first to cover that loss of unit possibly was my thought. I just wanted to clarify
For investors, cash flow does not account for income taxes--only property taxes as an expense directly related to the property.
The rate for income tax purposes will depend on the individual situation of the owner of the property (personal, LLC, s-corp., etc.) A rental property could significantly increase a person's income taxes depending on what tax bracket they are in--or it could significantly lower their income taxes due to net loss and depreciation. If the only income you have is a rental property, you could be at the poverty level and pay no or very little taxes. You'll have to connect with an accountant that understands real estate in order to get a good feel for how much you should put away to pay income taxes based upon your entire income from all sources. You may have to pay estimated quarterly taxes.
Cash flow for a real estate investment is determined by the net income of the property, i.e. income minus all expenses--not including a mortgage payment.
Hey Clay,
Why wouldn't the mortgage payment be included in your calculations? I am just curious why you wouldn't include that as an expense. Can you explain that to me?
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Originally posted by @Marvin Rice:
Hello! Most communities in Michigan have the taxes online. It might cost you a couple of dollars but I pay for it all the time when I am very interested in a property.
What exactly are you paying a couple hundred for in your above mention?
Thanks,
Melody
Originally posted by @Melody Everett-Neddo:
Originally posted by @Marvin Rice:
Hello! Most communities in Michigan have the taxes online. It might cost you a couple of dollars but I pay for it all the time when I am very interested in a property.
What exactly are you paying a couple hundred for in your above mention?
Thanks,
Melody
I was telling him that to get property tax information online was only a couple of dollars ($2) but I misread his quote. He was asking about income tax.
The other money I mentioned ($100 and $200) was answering his question about what cashflow to shoot for per unit.