Each of the items below will show you a financial facet of owning a rental property. We are using a fourplex as our example property. All of the examples below will be based on these facts:
Property purchased for $325,000, with $65,000 down & $260,000 financed.
This is a 30 year fixed rate loan at 6.5% interest.
The four units are identical and rent for $900 per month each.
So, let's get going with our financial analysis of this real estate investment.
This is a break out of the rental cash flow on our example property. This is not a tax liability calculation, but a straight out of pocket cash flow problem. In other words, we'll take out our mortgage payments, though all of that will not be deductible. We want to see the difference in actual cash flow in and out of our pocket.
We run you through the calculation of depreciation on the fourplex structure, as well as how it reduces our income tax liability on the cash flow in the previous step. We put back the mortgage payment in this calculation to begin looking at this from a tax perspective.
Now we consider our deduction for the mortgage interest on our fourplex. The result, without any other deductions any particular owner may bring into play, is our approximate tax liability. Note that we've reduced it considerably and realized a net positive cash flow after taxes.
