Renting and Calculating for Depreciation

[Andrew Jones]

I'm trying to understand the calculation for depreciation. I used a calculator and entered some numbers to find the yearly depreciation of a rental property. It tells me that it would depreciate in value by 7,700 a year. How is it possible to rent a home and at the same time make money if there seems to be so much money needing to be paid for.

Depreciation                7.7k
Insurance                     N.A.
Heating                        2.4k
Property tax                  4K
Mortgage Payment     15k

                          Total: 29.1

29.1/12= 24.25

I can't see how a tenant would pay 2425 a month to live in a home in my neighborhood.

Nice homes are renting for 1000 a month.

Example of a home in my area:  http://location.duproprio.com/4-et-demi-a-louer-st...

It seems a tenant would have a lot each month just for me to break even (pay the mortgage). I would have no surplus to reinvest back into the property for repairs and such.

Could someone please enlighten me on this? Thank you in advance!


Andrew

[Account Closed]

Depreciation is not an expense you pay. It is part of calculating the taxable income on a rental property (i.e. for tax purposes only). I highly recommend reading up on rental property financial analysis. Start with Frank Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow...and 36 Other Key Financial Measures." Then read as many other books as you can off the BP reading list. Good luck!