Gross rents for 2013 yielding 50%

Tax statements are starting to roll in. This year should be much simpler than last year, since my CPA won’t have to do as much work.

What I was thrilled at getting was a 1099 from my property manager that is handling our rentals. It lists how much gross rent we have received. It’s roughly half of the money we put down to buy these units. You could call that 50% yield on the money we invested. Is your 401K plan showing that much improvement?

Of course, it’s more complicated then that, because we used the money to secure financing that has to be serviced. But at the core of things, it’s a good sign that my portfolio is yielding rock solid cash. And the concept that it will keep yielding that same cash flow year after year is something you just don’t see when you invest in the appreciation of mutual funds.

Another nice tidbit is that this rental income is completely tax sheltered. The depreciation of the property exceeds the gross rent by a significant amount. By design. In the eyes of the IRS, we lost money this year. And because I can’t apply any of this loss to my ordinary income, we will carry the loss forward into next year. And so on and so forth, until sometime in the future (such as when we sell a unit) we can apply all the accumulated losses. That should nicely offset the capital gains taxes.

To top it off, I got news that one of our tenants is having to vacate his unit due to military reassignment. In case you didn’t know, military personnel can break a lease with no penalties when they receive orders to move to another base. I have no quarrel with that. Within five minutes, I had called up my leasing agent that finds new tenants and asked what rents we can charge. This is an opportunity to raise the rents. She happily noted that we can go up $25/month and will probably have it rented before these people move out. That is what it means to have the right experts on your team.

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