Syndicate
Business Analysis of Investing In Rental Properties
Investing in improved land requires of a large period of time in order to imagine the potential of financial gains that it owns, as well as for many other reasons already explained at the beginning of this section (difficulty in selling real estate quickly without losing a significant part of the investor’s principal).
The following example, illustrates some of the financial difficulties for not keeping real estate investments enough time to imagine its financial benefits.
Let’s pretend that a rental property is bought for the sum of $200,000. A conventional fixed-rate mortgage for $170,000 at 7% for 15 years is bought. The property is rented at $26,000 per year, with a presumption that the rent will increase in 2% each year.
For reasons of simplification mortgage is paid back in 15 equal annual payments of $18,665.08.
Under the current tax code, the residential rental property is depreciated after 27.5 years and the non-residential rental property after 39 years. Taxes are paid over the profits to the taxpayer?s marginal tax rate.
However, losses are used to compensate incomes of other properties and that also can be used as a refuge before taxes to reduce the total tax liability, under the condition that investors comply with requirements in the tax code.