Personal Narrative: Tax And Cash Flow Analysis

Purchasing real estate or making a transaction of this size will always maintain a level of risk. The low liquidity of real estate poses the biggest risk. As the investment carries substantial upfront costs and for length of time I own the property, expenses can be high. The risk may be higher for this particular home as it has been listed for a number of months with a number of times where they lowered the price. Suggesting the perceived market value of the home to be less than what it is listed for. This may give reason as to why the house is no longer listed, but was not sold. However, homes in the area have been sold for a large range making valuation of the neighborhood difficult. In any other city in Michigan I would worry about the risk of vacancy losses. However, as Grand Rapids is the fastest growing city in the state and with Grand Valley State University’s campuses so close this isn’t a that much of a worry. With proper marketing and advertising the right tenants can be reached. However, the rental rate is higher than properties within the neighborhood which can prove difficult to account for.
Financing Options: As I plan to sell this property by year five of ownership, or earlier if possible, I would finance the home through an investment
The first was to take NOI of each of the five year and deduct the interest expenses. This amount was found using an amortization schedule and amounts to $4,911.53 every year. With rent starting at $1,485 for the first year, this would be feasible with that amount of monthly income if I don’t suffer any vacancy losses. The depreciation amount was calculated by taking the purchase amount, removing the amount dedicated to land and then multiplying it by 27.5%. The tax liability assumed is 30%. When we add back in the depreciation value we get the following Annual Tax