Questions on calculations

6 Replies

Hi,

I'm tweaking my own deal calculator and have some questions.

I'm looking to invest in buy and holds.

Any help with the below would be much appreciated.

1. Should I break out withholding for general maintenance expenses and capital expenses into different line items and how much as a percentage of rent should each be? Brandon suggest 5-15% for each, should I use 5% for brand new houses and 15% for run down old wrecks?

1.1 A tax related question, will unused reserves for maint. and capex be taxed as income at the end of a year is there a way to shield these reserves from taxes?

2.How do I calculate depreciation for tax purposes. Is the depreciable amount the purchase price minus land value divided by 26.5 years or is it the value assigned after inspection minus land value divided by 26.5? Also, does the age of the property make a difference? I assume depreciation starts from the day of closing and not from when the property was constructed.

3. I can't for the life of me find the formula for extracting the decreasing interest component of mortgage payments. I'd like be able figure out when would be a good time to refinance for the purpose of increasing interest payments for tax purposes. 

4.How much should I calculate closing costs to be? Is this fixed or a percentage of the size of the deal? What should I assume the minimum closing cost to be?

5. Is there a minimum amount where banks wont provide mortgage loans?

Thanks in advance for answers or feedback on any of these questions.

Partial answer;

1.1  Money not actually spent, just put aside for reserves, is not deductible.

2.0  Based on actual costs, plus acquisition/closing costs, plus "get ready for rent" costs, less land---not the value of the property.

3.0 Don't know any formula-  use myamortizationchart.com  But, an observation:  I don't like the idea of spending an extra $1.00 to get 0.25 back.  I'm still out pocket $0.75.

4.0 depends on local custom in the area you buy, as to who pays what.

1.0 - I use 10%-15% for maintenance/CapEx reserve on all properties. Usually 15% but I have one newer property I use 10% for because everything is brand new.

2.0 - Depreciation is calculated only on the property, not on the land.  The easy way to do it is look at a tax bill that breaks out the value of the land and property, then split up your purchase price by that percentage. Now you have an amount of the purchase price that was just for the property and not the land. The depreciation is from when you purchase the property, not from when it was built.

5.0 - Most banks use $50k as their minimum. There are smaller banks that will go down to $25k.  I personally haven't worked with a bank that goes lower than a $25k loan amount.

Thank you @Wayne Brooks  .

When I think about refinancing and the right time to refinance the question in my mind is what do I want at that time. more cashflow or more capital. If I can pull out money and invest it in another property and keep my tax deductions maxed out, why not? I wouldn't refi just for the sake of a tax break, unless that tax break would actually make me money.

Thank you @Dawn Anastasi.

I assume that you are holding 10-15% for maint. and capex each, right?

I asked about the minimum mortgages amounts because I am looking to invest in below 50k SFH but do want to be able to use leverage. Do you know if a bank would consider refinancing a portfolio of properties rather than a single property. I mean, if for example you have 4 properties that cost 35k each and the bank wouldn't finance, do you think they would refinance the portfolio of 4 properties collectively valued at 140k?

Originally posted by @Bram Spiero:

Thank you @Dawn Anastasi.

I assume that you are holding 10-15% for maint. and capex each, right?

I asked about the minimum mortgages amounts because I am looking to invest in below 50k SFH but do want to be able to use leverage. Do you know if a bank would consider refinancing a portfolio of properties rather than a single property. I mean, if for example you have 4 properties that cost 35k each and the bank wouldn't finance, do you think they would refinance the portfolio of 4 properties collectively valued at 140k?

 Yes a bank would do that.  Not all banks, but if you have something over $100k that would be more worth their while.

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