Posted by Jim Rayner on March 10, 2001 at 24:04:49:
I’ll take a shot at trying to help you understand the problem. I am going to use your numbers except for the first year interest paid on the proposed debt service and i will use 80% of the aquisition cost of depreciable asset value.
you are confusing the taxable income outcome with an analysis of the quality of the investment.
Rental Income - Expenses[taxes,insurance,maintenance,utilities,debt service interest] - depreciation = The Net Taxable Income.
52800-[8400+1200+3000]=-9346 net taxable income at a 30% tax rate that = 2804 tax savings.
The quality of the investment would be:
Rental Income - Expenses[taxes,insurance,utilities,maintenance] - Debt Service [P$I] = Gross Profit
Gross Profit / Down Payment = Return On Investment
52800-[8400+1200+3000]-38199 = 2001
2001 / 75000 = 2.668% ROI
remember the first 10 % is always air so in reality you could anticipate at best a -7.332 % Loss
hope this helps