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Cash flow, tax savings, appreciation and loan paydown
Owner Education Lesson 2 of 4
A landlord usually counts one: rent minus the mortgage. An investor counts four, and most owners only half count them.
1
What's left of the rent after every bill: the whole mortgage payment, taxes, insurance, repairs, vacancy, management, and money set aside for the big things like a roof or a furnace.
If you forget any of those, you're overestimating it.
2
Depreciation is a tax deduction for the wear on the building, even while the property grows in value. In general terms, the IRS says:
Source: IRS Publication 527, Residential Rental Property.
3
The property gaining value over time. It doesn't show up in your bank account each month, and it isn't guaranteed.
Over 20 or 30 years it can be a big part of the return. That's why investors think in decades, not months.
4
Cash flow counts the whole mortgage payment as a bill. But the principal part isn't spent: it lowers your loan balance, and you get it back as equity when you sell.
In other words, your tenant is paying off your house for you. No mortgage, no loan paydown.
An investor will sometimes take less cash flow today if the whole picture makes sense over the long run. A landlord who only watches the monthly number can sell a good property too soon or keep a poor one too long.
Want to see all four with your own numbers? Try the Rent It or Sell It? calculator.
Depreciation has rules and exceptions that depend on your situation. Talk to a tax professional before you count on any of it. Eclipse is a property management company, not a tax advisor.
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This is general education, not tax, legal or investment advice. Eclipse Property Management is a property management company, not a tax advisor, attorney or financial planner. Talk to a tax professional about your own situation.
