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Posted by joetaxpayer on September 15, 2007, 3:53 am
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way111@gmail.com wrote:
> 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.
Likely, the OP understands his area, the rental market, etc.
Given his ability to own his home outright, and have a
rental fully paid for, the breakeven doesn't look bad. Look
at it this way, he will have two units, which, combined,
give him positive cash flow. The 'negative' result of this
purchase would keep his income from the first from being
taxable. Any gain in value or increase in rent is profit to
him. Think about this, had he not aggressively paid off his
home and the first property, and saved that money, he could
put a downpayment of 30%+ and have the property he's buying
look like a positive flow from the beginning. (disclosure -
I owned 4 rentals, had bad experiences, and now have just
one. I made all the mistakes the OP seems to be avoiding,
overleveraged, bad tenants, etc. I was young and stupid)
JOE
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