All Forum Posts by: Account Closed

Thanks for the reply.

I just want to confirm - maybe I used the wrong terminology but in my example, I think I am calculating the tax based on income.  I just called all of the expenses a deduction (though I forgot insurance), but I think I still get to the same taxable number.  Is this right, or am I off base here?

Also you are right, I had a typo and divided 160k by 37.5 instead of 27.5.  The depreciation deduction should be $5818.

Hi,

I'm a new investor looking to start buy-and-hold investing.

One of the challenges I'm finding is trying to find built-in equity, which I know many experienced investors preach for buy-and-hold strategies.

I've been pretty unoriginal in how I've been looking for properties; mostly through the MLS. I'm wondering if in other investors' experience, if it's possible (or practical to use this as my strategy) to find a good buy-and-hold with some amount of built-in equity off the MLS.

Unfortunately being based in CA, I'm currently forced to invest out of state, which makes me wary of buying a property in need of rehab.  I'm also looking for more of a passive investment anyway (I'd use a property manager), so managing a rehab or sending out mailers isn't really something I want to do.

Sorry if it's a newbie question.  Thanks!

Also, as a followup question on why I was confused, I had conceptually always thought  that an expensive California property that may be cash flow neutral pre-tax would be cash flow positive post-tax deductions.  However, looking at the math above, I now think that it would be cash flow negative post-tax assuming the gross income of the property is bigger than the deductions since I'll still have a positive tax bill.  Is this right?

Hi All,

I want to confirm if I understand tax implications of a rental property correctly.  The biggest confusion point for me is if rental income is taxed on gross income or net income (I think it's gross?)

Here's an example, and for this example assume the marginal tax bracket is the 25% bracket.

Property

- $200k SFH, of which $40k is land value and $160k is improvements

- $40k down, $160k loan

Income

- SFH renting for $2000 / month. For simplicity assume no vacancy, so $24k/yr gross income

Expenses

- Mortgage payment is $1000 / month ($12k/yr).  Initially $700 ($8400/yr) to interest, $300 ($3600/yr) to principle amortization.

- Property tax is $3600/yr

- Insurance is $1000/yr

- Annual property management expenses are $1200/yr

- Annual maintenance is $1000/yr

Tax Calculations

- $24,000 taxable gross income

- Deduct $8400 mortgage interest, $3600 property tax, $1200 PM expense, $1000 maintenance expense, $4267 depreciation = $18,467 total deductions

- Adjusted taxable income is $24000-18467 = $5533

Cash Flow

- Pre-tax cash flow is $5,200, for a first year CoC return of 13%

- Post-tax cash flow is $3,816.75 ($5200 - 25% * 5533), for a first year CoC return of 9.5%

Is this analysis correct? On property pro-formas, I'm assuming when people talk CoC returns, they refer to pre-tax returns, is this correct?

Thanks All!

I will admit I haven't taken the time to read through this whole thread, so maybe this has already been answered.  Also I'm a newbie so I'm more asking for my information than challenging anyone.

Sounds like this a useful rule of thumb, but I am assuming the 50% rule probably only works well for roughly 75k-150k properties, and I can't imagine it would work for the super cheap or more expensive properties.  While some expenses like property tax and insurance may be somewhat proportionate to the property value and rent, a good portion (like maintenance and utilities) are not.

For example I'm assuming the 50% empirically works in the 75k to 150k property value range.  But for a 25k house where you might be charging $400/mo rent, I'd think using 50% would grossly underestimate your expenses because maintenance and utilities would be a huge number relative to the rent.  Likewise, if you're buying a 300k house and charging 3k/mo rent in a higher land value area, I'd think 50% would be grossly overestimate your expenses.  A roof costs the same independent of the land value of the house.

Am I missing something here?

Hi all,

Can anyone recommend a good property management company in the Cincinnati or Columbus, OH areas?

Target properties would be mostly SFHs in B neighborhoods.  Communication (both speed and quality) are very important to me.

I've been doing a lot of Googling but would like hear the BP community's recommendations.

Thanks!