I know there have been many threads on this and I also know there are many fancy methods to attack this such as cap rates, etc.....
Here is my simplistic way of thinking about it, correct me if my logic is way off.
Annual rental income $31,200 (tax free as completely offset by depreciation and expenses)
Total annual Expenses: $18,000
This includes condo association fees, maintenance, average annual repairs, landlord insurance, mortgage interest, property tax escrow, and percent of annual accumulated depreciation that will eventually need to be recaptured.
Annual profitability (excluding any increase in property value): $13,200
Annual mandatory and extra principal payments ($43,000; seems irrelevant to this calculation)
Rental RoI (excluding any property appreciation): $13,200 annual profit / $225,000 (Adjusted equity based on estimated current value, depreciation recapture, capital gains tax, and passive loss carryover) = 5.87%.
Rents have been rising on average $1200/yr. Future property value appreciation tough to predict, but good city location. Possibility of future costly special assessments. May need a kitchen renovation before selling depending on the market. Variable interest rate has drifted up from 2% to 3.5% but in no rush to refi due to investment property surcharge. Could easily pay off remaining mortgage in a few years if needed.
Despite having some difficult tenants and more than my share of headaches the last few years, it seems a good long term hold, no? Would others assess differently? If I can stomach holding until retirement, I can potentially avoid paying any capital gains tax. Or I could 1031 exchange into something lower maintenance or even rental properties for my kids while at college or grad school. Or I could just cut bait now as i clearly don't enjoy being a landlord.
Thoughts?
Here is my simplistic way of thinking about it, correct me if my logic is way off.
Annual rental income $31,200 (tax free as completely offset by depreciation and expenses)
Total annual Expenses: $18,000
This includes condo association fees, maintenance, average annual repairs, landlord insurance, mortgage interest, property tax escrow, and percent of annual accumulated depreciation that will eventually need to be recaptured.
Annual profitability (excluding any increase in property value): $13,200
Annual mandatory and extra principal payments ($43,000; seems irrelevant to this calculation)
Rental RoI (excluding any property appreciation): $13,200 annual profit / $225,000 (Adjusted equity based on estimated current value, depreciation recapture, capital gains tax, and passive loss carryover) = 5.87%.
Rents have been rising on average $1200/yr. Future property value appreciation tough to predict, but good city location. Possibility of future costly special assessments. May need a kitchen renovation before selling depending on the market. Variable interest rate has drifted up from 2% to 3.5% but in no rush to refi due to investment property surcharge. Could easily pay off remaining mortgage in a few years if needed.
Despite having some difficult tenants and more than my share of headaches the last few years, it seems a good long term hold, no? Would others assess differently? If I can stomach holding until retirement, I can potentially avoid paying any capital gains tax. Or I could 1031 exchange into something lower maintenance or even rental properties for my kids while at college or grad school. Or I could just cut bait now as i clearly don't enjoy being a landlord.
Thoughts?
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