That allowance is then baked into the lease because the building's owners and the tenant each get substantially greater tax benefits from working the deal that way. 

I have weekly deposits into both wealthfront and betterment to dollar cost average in to the market and to have them manage and rebalance my portfolio for my after tax investments.

There are some things you'll want to make sure of such as making sure the valuations match up correctly to avoid all tax. 

Since the way to avoid all tax is to purchase at least as much as your net sale the key is the aggregate values rather than the individual. 

Total Insurance Estimate $ 262.50 Current rent $ 800.00 $ 9,600.00 $ 10.40       $ 21.88 Less: vacancy allowance - 10% $ 40.00 $ 480.00         Net Rental Income $ 760.00 $ 9,120.00   Property Taxes 2.5264% $ 505.28 Plus: Other Income $ - $ -         Total Income $ 760.00 $ 9,120.00 $ 9.88                 EXPENSES         Property Management $ - $ -         Repairs & Maintenance $ 100.00 $ 1,200.00         HOA $ 250.00 $ 3,000.00         Advertising & Legal         Insurance $ 167.00 $ 2,004.00 $ 2.17         Total Expenses $ 517.00 $ 6,204.00 $ 6.72                 Net Operating Income (NOI) $ 243.00 $ 2,916.00                 Less Debt Service (PI) $155.06 $ 1,860.72 $ 2.02         Less Property Taxes $ 42.11 $ -                 Net Cashflow $ 45.83 $ 1,055.28                 Operating Expense Ratio 68.0% (Total Expenses/Total Income)               MORTGAGE INFO         Total Loan Amount $ 20,000         Type of Loan Seller Financed         Term (Months) 240         Interest Rate .07         Down Payment $ 2,000 10.00%         Monthly Payment (PITI) $155.06                 Purchase Price $ 75,000         Closing costs $ 3,000         Rehab $ 7,000         Total initial investment $ 85,000                 LTV 27% Loan Amount/Purchase Price         Cap Rate 4% Annual NOI/Price         Cash-on-Cash Return 146% Annual before-tax cash flow (i.e., NOI)/Down payment    

It seems like the rentals will still beat out the passive stuff due to taxes but it would definitely be on a case by case basis.Clearly a few years ago the numbers were in favor of buying rentals. 

It usually helps when you show them on paper how they will usually make more money and how it can spread out their income and pay less taxes over the length of the loan. 

One was a recent tax lien and the others are inherited properties.

He says he lost it in a bankruptcy, back in the 90s......then who's been paying property taxes???

To factor in appreciation, principal paydown, tax benefits, you'll want to figure your IRR.