Closing costs on both the sale and purchase also factor into the calculation.1) purchase price plus your closing costs is your initial basis.purchase price $100,000.00purchase costs $2,000.00initial basis $102,000.002) depreciation reduces your basisvalue of improvements $80,000.00annual depreciation $2,909.09depreciation after 10 years $29,090.91basis after 10 years $72,909.093) closing costs on the sale reduce your net return from the saleselling price $150,000.00selling costs $3,000.00net selling price $147,000.004) net selling price less your basis is the total gaintotal gain $74,090.915) the gain is now split into unrecaptured depreciation and capital gainsuncaptured depreciation $29,090.91cap gain $45,000.006) And the tax is computed on eachrecapture rate 25%cap gains rate 15%recap tax $7,272.73capital gains tax $6,750.007) add them up to get the total tax billtotal tax $14,022.73Do notice that each year you had a deduction of just under $3000.  

Thank you Darren.Yes, defimitely inderstand that the rule is not by any means the only determinimg factor in whether a deal will make sense from am end-buyer's standpoint.

The P&I is assuming 30 year fixed at 5% and I also factored in part of the down payment that we are utilizing a HELOC for.

You're a smart guy partnering with someone with a little age for the credibility factor.

Just because it's cheap doesn't mean it's a deal.If you have experience with complete rehabs, you should look a little closer at the factors mentioned above, such as the neighborhood trends.

Give it that "cute" factor. 

Plus factoring in the property management expense, of course.

Your real world may be different depending on many factors of where you are.

I'm sure the city where the signs are placed plays a factor.

There a are lot of factors involved with how you can approach this.