• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Epic Finances

Investment Blog Goal: 25% Return a Year

  • My Portfolio
  • Real Estate
  • About
  • Contact
  • Favorites

Being a Landlord, Is it Worth Owning Rental Property?

By Carmello on October 17, 2011

Being a Landlord, Is it Worth Owning Rental Property?

Example for Numbers: You have a relatively bad experience but not unrealistic experience with your rental.

     

  • You have a 11.6% (7 months out of 5 years) because in year 3 you had a tenant that did some damage, it took you 4 months to evict, repair, and re-rent the unit. (It also happened while you had your second child to add drama and family stress).
  • The tenant trashed the carpet and did some drywall damage, you repair it yourself and have carpet installed – $1800 repair.
  • During the 5 years you spend $5000 as planned for disasters because the furnace goes out and the roof needed some repair.
  • You decide you want out of the game and sell the rental 5 years with a real estate broker. There has been no appreciation or depreciation on the property.
  • Rent goes up $10 a year net over taxes increase
  • We will assume you sold the day after the rental in year 5 left. (Not likely, but favorably in the calculations)
  •  

     

     

     

     


What’s coming in:

  • Year one Revenue: 950 * 11 months = $10450
  • Year two Revenue: 960 * 11 months =  $10560
  • Year three Revenue: 970 * 8 months =  $7760
  • Year four Revenue: 980 * 12 months = $11760
  • Year five Revenue 990 *  11 months = $10890
  • Deprecation Net @ 25% , $454 * 5 = $2270
  • Equity in Sale: $4780Total in: $58470

What’s going out:

  • Year one Revenue: 725 * 12 months = 8700
  • Year two Revenue: 725 * 12 months = 8700
  • Year three Revenue: 725 * 12 months = 8700
  • Year four Revenue: 725 * 12 months = 8700
  • Year five Revenue 725 * 12 months = 8700
  • Carpet and Drywall Repair: $1800 once
  • Cost of Broker: $4200
  • Taxes on Gain (($9090 ($1818* 5) + $4780 equity built up) * .15 – $4200 broker’s fees ) = $1450.50
  • Opportunity Costs of $13000 @ 5% for 5 years = $3591Total out: $54541.50

Net: $3928.5 over 5 years, $758.70 a year, $65.47 a month.

This is assuming:

You don’t have a substantial increase in tax
Additional legal costs
Any Insurance claims/deductibles
You don’t go over $1000 a year on average for disasters
Rent can go up $10 a year OVER the increase in tax
The rate of return would only be 5% on your down payment
You rent the property without paying someone to help you rent the property

$65.47 a month after all of those assumptions. How many hours do you think you average dealing with the tenants and repairing – What do you think the $ per hour is? Whatever it is, I bet it is scary.

Some of you, especially rental owners are up in arms right now. Saying things like:

 


”I don’t have 89.4% occupancy, I have 95%”
”My tenants never trash my properties”
”I plan on owning it more than 5 years and that’s when the money really starts to happen”
”The real estate market will appreciate”
”I would never pay that much for a house”
“I could rent it for more”
”I only own multi-units”
”There are more aspects of closing costs that benefit you tax wise” (I admit I ignored closing costs besides the broker/realtor’s on the selling end)

 



All of these are valid arguments, but *really* put a pencil to your properties – it might scare you. For me, even if the it was 500% more than my estimation in the first five years – $19642.50 – it’s not even close to being worth it to me. But that is my opinion.

Also I would like to note that the repairs and disasters fund might be a little favorable towards owning rentals. I think an argument that my example was off one way or the other can be made, but this article is more about the big picture.

Note: I completely understand the longer you have a property the more lucrative it becomes.

Disagree with me? Leave a comment.

Still think it is easy Being a Landlord?


 

 

 


 

Pages: Page 1 Page 2 Page 3

Primary Sidebar

Archives

Article Categories

  • Amazon
  • Bonds
  • Butterfly Options
  • Cash Back
  • Ebay
  • ETF
  • Favorites
  • Gold
  • Guest Posts
  • Home Depot
  • Investing
  • Lowes
  • Options
  • Owning a Home
  • Personal Portfolio Update
  • Phone and Utilties
  • Product Reviews
  • Real Estate
  • Retirement Accounts
  • Saving Money
  • Silver
  • Stocks for the Long Run
  • Uncategorized

Copyright © 2021 · Smart Passive Income Pro on Genesis Framework · WordPress · Log in