Fourplex Deal Analysis

[Guru Srini]

Hello,

Can you please help me in this fourplex deal analysis

My goal is cash flow long term

Sale price - 440K
Rent - $3675/Month
Down payment - 110K
Loan - 330K at 5.5% rate
Location - San Francisco

Thanks
:cool:

[Jon Holdman]

If you goal is cash flow, this is a terrible deal. 5.5%, 5.25%, doesn't matter. You're just slightly off break even, one way or the other.

The "tax break" is BS. Since your AGI is over $150K, you can't use it to offset ordinary income. Depreciation would reduce the taxable income from this, but again, you can't take it.

The passive loss you can't take can be carried forward and applied to the gain when you sell. However, depreciation is a double edged sword. When you sell, the amount of gain up to the depreciation taken (or allowed, if that's greater) is subject to deprecation recapture tax. So, you're going to do your taxes each year to determine you passive loss which you will have to carry forward. When you sell, you apply those losses to your actual gain. What's left is subject first to depreciation recapture, then to capital gains taxes.

The tax benefits of real estate are mostly useful for reducing tax on the actual income. But you need some income. Good deals produce income, even after applying depreciation. Bad deals need some "tax benefits" lipstick slapped on them to make them look better.

If you're truly interested in a profitable rental, there are lots of places where you can get these. You might try looking just to the east. Sacramento, Stockton, etc. Paying $440K for $3675 rent will never be profitable, if cash flow is your goal.