Is being a landlord worth it?

[Anonymous No.55367821]

I bought a house in 2021 but I’m tired of the location. I’m thinking about renting it out and having tenants pay my mortgage so I move to the city

Is this a good idea, financially speaking? I’d hire a property mgmt company to deal with tenants so I can be as hands off as possible

[Anonymous No.55368839]

If you bought in 2021, you have a low interest rate (likely below 3%). That mortgage has value - you shouldn't be giving it up.

When you rent a house out, you still get to deduct the property taxes and the interest payments. You also get to deduct depreciation, which is capped at 3.6% of the property's value.

The fed is likely done with rate hikes. They're not going to cut for a while, but inflation has become flat. Meaning property will go up based on current inflation rates (2.5%).

Median home value is 360k in USA, so lets say that you have 280k on your mortgage at 3%. The average asking rent is $2000/mo. Again, all of these numbers can vary significantly by metro area

Income:
Rental Income: $2000/mo = $24,000/year
Home Equity (2.5% inflation) = $9,000/year

Deductions:
Property Taxes: $4,000/year
Mortgage Interest: $8,000/year
Depreciation (capped at 3.6%): $13,000/year

Since deductions are greater than income, you don't have to pay taxes on the income

Total Income: $33,000/year

Equity Payments: $6,000/year
Mortgage Interest: $8,000/year
Property Taxes: $4,000/year
Home Insurance: $1,000/year
Property Management (5%): $1,200/year
Home Maintenance/Repairs: $2,000/year (could me more/less)

Total Expenses: $22,200/year

Net Income: $10,800/year
Gained equity (2.5%): $9,000/year
Net Income + Equity: $19,800/year

Then calculate the money you would receive from the sale of the property (Home Value - 5% - Mortgage Balance), and determine a reasonable rate of return for investing that money elsewhere (Minimum 5% - treasury bills), and compare that number to the 20k/year that you would earn with the house.

Assuming 25% equity in the property, you would net 72k if you sold the property, and would need to achieve 27.5% returns to get the same profits as renting the property out, probably more since those profits are most likely taxed. Home equity is not taxed as long as you have lived in the property for 2 of the past 5 years.

[Anonymous No.55370425]

>>55368839
holy based, thanks anon