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Updated over 1 year ago on . Most recent reply

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Chisolm Tessem
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Need help with a rental example from bigger pockets

Chisolm Tessem
Posted

I apologize i advance if this is not the place for this. I've been learning all I can to ready myself for an entrance into real estate in the next few years and have run into a problem that I think I'm missing a piece of knowledge for. I was reading this section on where this example is given:

If your duplex is worth $800,000, your depreciation expense is $29,091 ($800,000/27.5). Let’s say your duplex generates $80,000 in income for the year, and you pay 25% in federal income tax, then:

• Taxes owed without depreciation = $80,000 x 25% = $20,000

• Taxes owed with depreciation = ($80,000 – $29,091) x 25% = $12,727.25

Lets assume you generate a positive cashflow of $300 per door, thats $600 monthly cashflow for the duplex or $7200 annual. Am i missing something or would I be paying my entire cashflow plus $5527.25 out of pocket to cover taxes for the luxury of owning a rental property? is this just a bad example or an example of a bad deal?

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