Realtor · Farmington, MI · Member since 2016 · 126 posts · 69 votes
Hello All:
Background:
I'm currently working towards my Relator License for the State of Michigan. In one such class, the instructor highlighted the importance of analyzing Real Estate deals with Depreciation for Building Value of Real Estate and how? that could improve the Cash flow on an annual basis.
Question: Does BP Calculators (BURR, and Rental) in particular; used to analyze deals both for Single Family and Multi Family, account for Depreciation.
If the calculators don't account for depreciation, in my view Performa and Cash Flow would be discounted and that is not a true reflection of cash flow on an annual basis.
I think you mean BRRRR calculator. Neither calculator includes depreciation in the analysis. Depreciation and Cash Flow are two separate and distinct topics. Depreciation is only a paper loss you claim on your tax return. Thereby decreasing the amount of income tax owed. It has no bearing on the operation on the rental property. Except if you are trying to determine when to implement a Capital Expenditure (i.e. replace the roof) in order to start claiming the depreciation.
Cash Flow is the result of your rental income received less all expenses during a given period. That includes moneys held in reserve for future CapEx (the roof!). There is no discounting involved.
The link that you provided does not work. What is the actual title of the article? I could look it up that way and be able to comment as it relates to your discussion.
Investors could depreciate using Real Estate Investment from year 1 using (a) General Depreciation System (GDS) or (b) Alternative Depreciation System (ADS). In most cases GDS is applicable.
I agree with you depreciation may not be considered as cash flow.
However sure does effect the bottom line for the Investment in Real Estate.