All Forum Posts by: Adam Gott

I am interested but working this time (shift worker).

I am looking at two options (for a first time rental investment):

1.  4 plex for $200,000 - needs a little work but in pretty good shape for my area.  Lower rent tenants but not the bottom of the barrel.  ROI 11.14%.  For this I gave a huge allowance for vacancy - 16% - until I see some actual historical numbers.  And I used ~16% for maintenace/capital expenditures.  This one was built in 1960 and is in a somewhat 'lesser' part of town.

2.  Two duplexes used as college student rentals for ~$360,000.  Built in 2002 and in great shape, a couple of blocks away from the college but they are both furnished.  Property manager in place and will continue for 8%.  ROI for these is closer to 7% but that is highly dependent on vacancy rate (in the summer it is 66%, which I have figured in to my ROI).

Which would you choose? I will use a PM for either and figured 10% for the first option. I guess the choice comes down to older unit with more headaches or newer units with less problems but less profit? From reading the forums it seems that there are people in both camps! I know that the ROI isn't great for option 2 but it's good for my area and if i add in tax benefits to myself they both nearly double.

First time rental purchase, I'm well in to the 25% federal bracket (and 7.2% state) and plan on being so for at least the next six years (retirement). I'm analyzing a lot of deals that barely get me 8% ROI but if I throw in expected tax deductions (expenses plus depreciation) it usually nearly doubles my ROI. Is there a flaw in looking at the numbers this way that I am not considering?

I know that as i increase my portfolio I might expect to bump down into a lower tax bracket (or actually show a profit!) but for now one of my primary reasons to get into real estate was to lower my tax liability.  Approximately 20% of my 2015 income went to state and federal income taxes and this year it would even be worse as our two primary residences were paid off last summer.

Thanks in advance!