All Forum Posts by: Walt B Philip

I'm trying to calculate my expected real profit vs the basic formula and seeing income tax taking a hefty chunk out. Is this right? Can you please correct me where I'm wrong? Simple numbers for sake of conversation below, leaving off CAPEX/vacancies:

Rental property price: 500,000

Down payment: 100,000

Taxes: $14,000 year

PITI: $3,000mo / $36K annual

Rent roll: $5K monthly / $60,000 annual

Expected profit: $24,000

But in reality the tax rate of 24% will be applied towards taxable income. Deductions applied:

Taxes: $10,000

Interest: $12,000

Depreciation: $10,000 (optimistically)

Thus income tax is: 0.24 x 28,000 = $6,700

Real profit: rent roll - PITI - income tax

SO: 60,000 - 36,000 - 6,700 = 17,300

So ROI goes from calculated 24% to 17%

Does anyone else see a flaw in this reasoning? 17% is still very good but the income tax is quite a drag. Is this the right general way to understand things?

I sincerely appreciate whatever insight you have.

It started 40 years ago when western countries started outsourcing manufacturing there and those countries started getting wealthier.  If anything, they artificially hold their currency down so they get a favorable trade advantage from us.  Weird though because a lower dollar would dramatically help out export sales, so it never made much sense to that trump would want a strong dollar.  The strongest and most stable currencies in countries like Switzerland benefit their economies but ours is a bit more complex.

 I can’t help but wonder about this as well.  The government can protect people for a while but it can’t change the nature of market economics.  Eventually something has to give.  The folks blithely proclaiming “time in the market” have apparently never seen a stock go to zero or a neighborhood stay unprofitable for half a century.  Just as quickly as the government can make safe investments like CDs entirely unprofitable in order to incentivize risk assets, they can reverse that trend if it’s deemed a useful policy tool.  Maybe it’s just me because I’m new to real estate but I’m coming from a financial markets background and I have to be honest: folks in real estate seem to think they’re immune to market economics to a much greater extent than I’ve seen in any other sector (including oil and how’s THAT working out for them? LOL)

There’s no nice way to say it: the last group of politicians did everything they could to concentrate wealth at the expense of the overall health of the economy and it’s not even fully known how many people won’t be getting jobs in 2021 and how many properties stand to be foreclosed.  Stats like this should be CLOSELY tracked at the top of the house but they tried to brush reality under the rug with programs like PPP that ultimately just created lots of zombie companies that rest assured will die (and make even more people unemployed).  Now, for better or for worse, we are faced with the incoming administration openly saying they want to make housing more affordable which can only mean they aren’t interested in pumping asset prices up....because let’s be real, it’s not creating jobs.  Maybe it means some tax scheme to help middle class buyers but more likely they’ll withdraw price support because again....it’s not really benefitting anyone except folks who already own houses.

Something simple like a tax incentive to corporates to sell off a lot of the SFH rentals they picked up after 2008 could knock prices down across the board considering they picked up tens of thousands at a time. Or the government can end the interest rate deduction for institutional investors and make SFH rentals entirely unprofitable to PE shops, thus forcing a firesale and 30% decreases. Lower real estate prices can be engineered quite easlitu without a recession. And this is just one set of scenarios but you can see how quickly things can change. If they can enforce a nationwide eviction moratorium, they can verifiably do this.

In the big picture, despite the highly disingenuous real estate agent talk of “low inventory”, the overal population has not surpassed the relative number of homes available to the extent needed to justify such price increases....it’s just HOW the existing homes are being used on a wide scale.  I’m curious to see what happens in the next 3-6 months.

 Hi Bob, thanks for helping me understand, very much appreciated 

I’m in process of learning how rental properties tax deductions work.  One item I see is properly management.

If I manage my own property, can I form a LLC as a property manager with myself as the employee? In essence I'd be paying myself to do the maintenance I'd otherwise do for free...then claim it as a tax deduction.. Does that fly?

Thanks guys but not following.  Let me ask it differently: is the rent that tenants pay to me taxable?

Just getting started with rental property investing and I'm wondering if the cash flow generated above and beyond all expenses (PITI etc) is taxable as income in NJ.

Numbers to illustrate the question: PITI is $3000/month and rent is $4000, so cash flow is $1000. Is that 1000 taxable?

Looking for alternatives to NJ (where I live) because real estate has become too expensive to find decent cash flow and prices are going up faster than rents ever can.  What are some good alternatives?  PA?  Overseas?  

ETF price inflation (aka “bubble”) is different than core inflation

https://www.bloomberg.com/news...

 That’s the inference I drew, so trying to see if there’s a continuity.  Assuming more of the same, I should be buying everything in sight knowing a year from now it will be another 20% higher.