This is how I see the calculation:
My projected rent is: $1850
now the expenses:
My monthly expenses would be: (my current mortgage split is 649
(interest) + 412 (principle). I am including the interest part as an
- Mortgage : 649 (interest part)
- HOA : 510
- Property tax: 352
- Estimate of monthly repairs : 100
Don't forget the insurance, management fee, and principle:
- Management fee: 148
- Principle: 412
- Home insurance: 50
Your total: 1611 + the added parts: 610 equals $2,221 per month.
That means that you are losing $371 a month.
From a tax perspective you will be able to reduce the impact of the income by everything on that list with few important caveats:
- You can't use the principle payment to reduce your income.
- You can only count actual expenses for repairs. That means while you can estimate $100 per month, you will will only claim the actual amount.
That means the tax impact will be:
- income $1850
- reduced by : 2221-412 or 1809
That means before counting depreciation the IRS considers that you are making an estimated $41 a month in profit.
You can and must claim depreciation on the property. You must because when you sell the property the tax forms will force you to account for them in the calculation even if you never took them.
When calculating the depreciation of a single family home without a HOA it is simple: you depreciate the value of the improvements and but not the value of the land. With a townhouse or a condo with a HOA, that becomes more difficult. Some of that value when you buy and sell is the area outside the walls. You need to get a tax advisor to make sure the split is done correctly.
Paid special assessment for major building repairs : $36,000
That special assessment can be problematic. If you were renting the property when that assessment occurred you would need a tax opinion if that can be claimed at the time you make the payment, or if that special assessment has to be depreciated over the lifetime of the item.
Once you get an estimate of the depreciation, you will know if during a typical year you will make or lose money. The risk is that repairs, special assessment, and HOA increases will happen happen at a greater rate than you can increase the rent.
If I change to 15-year loan, that will decrease my interest share of
the mortgage and my equity will build quickly. Will it make sense
This leads to several considerations. The higher rate of principle payment will mean that your monthly expenses will include a higher amount that doesn't reduce the impact of the rent. You will have to run the exact numbers.
Another consideration is that if the lender knows you will be renting the property they may have different income and down payment rules. They will factor in that you will not always have the property rented, so it can be much harder to qualify for a 30 year loan for a rental property let alone a 15 year loan. Some lenders will not even consider a loan for rental property.
Even without the new loan, you need to make sure the HOA allows rentals. Too many rentals make it hard to sell units because some lenders will not make loans in those communities because of the belief that absentee owners mean eventual loss in value.