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Posted by way111 on September 14, 2007, 12:35 am
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> I need some Tax Advice for rental property.
> ...
> I am thinking about buying a second rental for 170k.
> ...
> My second rental would rent for about 1200 per month.
Tax considerations aside, this doesn't seem like a very good
investment to me.
$1200/month * 12 months = $14400
$14400/$170000 * 100 = 8.5% gross return on your investment.
The mortgage is going to cost you around 6%, so now you are
down to a 2.5% return.
Subtract property taxes, insurance, maintenance, and
possibly utilities, and I bet you are left with a negative
return.
And, this assumes a 100% occupancy rate.
So, this investment will likely only break even or cost you
money out of pocket every month on a cash flow basis, with
your only real return being the tax deduction from the
depreciation. At your incremental rate, even this isn't
worth that much.
Unless you have strong reason to believe that the property
will appreciate in value substantially (which in the current
housing market seems unlikely), I'm wondering why you want
to do this deal. The numbers don't work.
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Posted by Seth on September 15, 2007, 3:53 am
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> Tax considerations aside, this doesn't seem like a very good
> investment to me.
Tax considerations are never aside, especially in this
newsgroup.
> $1200/month * 12 months = $14400
>
> $14400/$170000 * 100 = 8.5% gross return on your investment.
>
> The mortgage is going to cost you around 6%, so now you are
> down to a 2.5% return.
2.5% of _what_? If I can make a 2.5% margin on borrowed
money, I'll do it in the billions (if I could).
Seth
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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by HW \"Skip\" Weldon on September 16, 2007, 3:27 am
Please log in for more thread options ethb@panix.com (Seth) wrote:
>> $14400/$170000 * 100 = 8.5% gross return on your investment.
>>
>> The mortgage is going to cost you around 6%, so now you are
>> down to a 2.5% return.
> 2.5% of _what_? If I can make a 2.5% margin on borrowed
> money, I'll do it in the billions (if I could).
Before you rush out to borrow those billions, remember that
the OP said the 2.5% was before property taxes, insurance
and maintenance costs. Also, what about inflation - are we
assuming 0?
-HW "Skip" Weldon
Columbia, SC
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Seth on September 16, 2007, 3:53 am
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>ethb@panix.com (Seth) wrote:
>
>>> $14400/$170000 * 100 = 8.5% gross return on your investment.
>>>
>>> The mortgage is going to cost you around 6%, so now you are
>>> down to a 2.5% return.
>
>> 2.5% of _what_? If I can make a 2.5% margin on borrowed
>> money, I'll do it in the billions (if I could).
>
>Before you rush out to borrow those billions, remember that
>the OP said the 2.5% was before property taxes, insurance
>and maintenance costs. Also, what about inflation - are we
>assuming 0?
Inflation is in the debtor's favor; he pays back the loan with cheaper
dollars. (Income and costs other than mortgage rise together.)
Seth
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
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Posted by Stuart Bronstein on September 16, 2007, 8:54 pm
Please log in for more thread options > ethb@panix.com (Seth) wrote:
>>> $14400/$170000 * 100 = 8.5% gross return on your investment.
>>>
>>> The mortgage is going to cost you around 6%, so now you are
>>> down to a 2.5% return.
>> 2.5% of _what_? If I can make a 2.5% margin on borrowed
>> money, I'll do it in the billions (if I could).
> Before you rush out to borrow those billions, remember that
> the OP said the 2.5% was before property taxes, insurance
> and maintenance costs. Also, what about inflation - are we
> assuming 0?
OP's number are extremely simplistic, and ignore a lot of
things that add to the value of owning real estate. For
example the mortgage "cost" includes paying down of
principal, which he banks but does not currently recognize.
Real estate generally also appreciates in value, so he gets
the multiplied value of that, since the increase is based on
the full value of the property even though his down payment
was only a fraction of that amount.
Additionally, all the payments for mortgage interest, costs
of upkeep, etc., are deductible from taxable income, though
when the place is sold most income will likely qualify as
capital gain and as a result will be subject to taxes at a
lower rate.
Stu
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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