Some finance bloggers talk about being a landlord as if it is very easy, but is it?

A lot of people are searching for ways to increase their income and many people find investing in rental real estate and being a landlord as a viable way of increasing wealth over the long term. The idea is simple and easy for most people to understand, so it’s natural that so many people are being a landlord now a days.

Real estate is what I enjoy to research. First I want to look at real estate in my nearby area, particularly a single family home. I live in a better suburb of Cincinnati, OH. The taxes are reasonable (slightly higher than other areas of Cincinnati, but overall fairly cheap).

Putting a Pencil to it First:

Single Family Home – Listed $69,900, Annual Taxes: $2251, Insurance $700
Assume a 20% down payment, lets say you buy the property for $65,000 after all fees and closing.

Owning Rental PropertyMortgage Payment: $349.33
Monthly Taxes: $187.58
Monthly Insurance: $58.33
Maintenance Cost: $50
Disaster Fund
($1000 a year / 12) = $83.33 – Roof, A/C, Furnace, Water Problems, Deductible, Etc.
Lets call these two items: $130

Total Cost: $725.24 a month
How much can you rent it for – This is a debate. Lets say you can get $950 for this home. It is in good condition, but not in the best place within the good suburb. Also I want to state this is the cheapest single family home within the area.

So now lets talk about what you get out of this:

Deduction: You can depreciate the value of the Structure, but not the land. Lets be favorable and say you can deduct $50,000 of the $65,000 over 27.5 years (what is current permitted). That is $1818 a year. We will come back to this.

You financed your home – $52,000 worth of financing in Fact. How much equity are you building with a standard 30-year mortgage at 4.25% with no additional payments:

Year 1 $877
Year 2 $914
Year 3 $955
Year 4 $995
Year 5 $1039

 


 

What about occupancy rate. Are you planning on having this rented 12 out of 12 months? Sure, but that’s not realistic. You make get a tenant that lives there 30 years straight, but more likely than not you should plan at least 5-11% vacancy. Lets call it 1 month a year (8.3% vacancy). Note: Rehab and Repairs can increase this greatly.

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