I’ve always wanted to own 8-10 rental units in my neighborhood, so that ultimately I can “retire” and draw old-age income off of them. I run a successful business with 20 employees. I’m good at handling people (tenants). I generate enough current income to keep me squarely in high tax brackets and AMT territory. So far I own just handle one rental unit, an apartment in my current home, which is my first trial in this direction.
I had not intended to make an investment this year. However, a duplex nearby has come on the market that is very attractive. With 20% down, the rents will cover the mortgage payment but not property taxes and insurance, water, garbage and repair allowance would run to about $12k per year cash loss.
I generally look at property in a 10 year horizon, since that’s about how long I’ve owned each of my three houses (actually 9 years, 6 years and current in year 6 now).
Q1) I’m showing $31k income, $31k interest, $13k Depreciation, $12k property taxes, insurance and fees. So the net passive loss is $25k. My income means I can’t deduct this so it is all deferred down the road. Unfortunately it will be $12k out of my pocket per year to start, moving to zero as I can raise rents in the future. Does this sound pretty normal for a residential mortgage for income property?
Q2) Let’s say I hold for 8 years, sell for $200k gain, and realize my passive losses of about $200k. Does that mean I walk out of closing with $200k cash without paying taxes at that time? Does that $200k count toward AMT?
Q3) This house is high end, and would attract premium renters. I’ve heard the basic rule of RE is to stay away from the top of the neighborhood, invest in the bottom. This house is top. In other peoples experience, for long-term rental/investment, would you prefer low end, medium or high end housing stock for your portfolio?
Thanks for any and all advice.