I want to buy another OB rental

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Submitted by gzz on August 23, 2021 - 1:32pm

Eager to hear what people think. My first 3 purchases (2011, 2014, 2016) were all slam dunks in retrospect. However, current valuations have me a little queasy.

Running the numbers on one place that is close to my home, I see it breaking even the first year to account for the time it is empty and under reno, plus the reno costs, and then profiting ~12.8% a year as the return on the down payment. And if I assume a 2% long term price appreciation, the return on the initial down payment goes to about 22%.

The tax advantage I may not understand correctly.

You deduct depreciation each year, and then when you die your heirs get the property at a stepped-up current basis so the depreciation was a large "free" tax deduction, right? Or if you sell, you cough up the deductions as higher capital gains, which still isn't bad because the deductions were off higher-taxed ordinary income?

Submitted by gzz on August 23, 2021 - 1:47pm.

I see there's something called a depreciation recapture tax of 25%. Which is still below the federal income tax rate I'm in, but higher than long term capital gains.

Submitted by gzz on August 25, 2021 - 12:40pm.

Well the place I ran the numbers for has offers more than 25% over list. Oh well!

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