Course
How to analyze a rental property, from the cap rate to the sale.
Six short lessons. One made-up rental, held ten years. Every figure, from the rent to the tax on the sale, from one model.
EDUCATION, NOT ADVICE ·
The example property. Example House is a made-up rental. A model script calculates every figure, so you can check each one. The tax figures use 2026 federal rules for a married couple with a joint return, and they leave out state tax. Talk to a tax professional before you act.
Full disclosures →
How the course works
Every lesson uses one made-up rental, Example House, held for ten years. A model script calculates every figure, from the rent in year 1 to the tax on the sale.
The tax figures use 2026 federal rules for a married couple with a joint return, with modified AGI of $140,000. They leave out state tax.
The lessons
- The cap rate is the return before the mortgage. Rent, vacancy, operating expenses, NOI and the cap rate.
- A loan helps only when the property earns more than the loan costs. The payment, cash-on-cash return, the loan constant and leverage.
- Rent grows, but the payment does not. Cash flow, principal and equity, year by year.
- Depreciation lowers the tax on a rental, within limits. Depreciation, the passive loss rules and losses carried forward.
- The sale gives back the depreciation, and the tax law taxes it. The gain, depreciation recapture, a 1031 exchange and a refinance.
- Compare the rental with what the same cash earns in an index fund. The return a year, the value growth that it needs, and what the figures leave out.
Example House on one page
| Measure | Example House |
|---|---|
| Price | $300,000 |
| Cash invested | $81,000 |
| NOI, year 1 | $17,371 |
| Cap rate | 5.79% |
| Cash flow, year 1 | -$592 |
| Tax loss, year 1 | -$6,837 |
| Tax on the sale, year 10 | $32,334 |
| Cash to the owner at the sale | $153,573 |
| Return a year, after tax | 8.93% |
| Index fund, after tax | 6.18% |
Also in the field guide: the financial statements
course and the valuation course. For the home that you live in:
rent or buy. Start here:
lesson 1.
Sources
- IRS, Publication 527, Residential Rental Property, for the 27.5-year recovery period, the straight line method and mid-month convention, land, and the settlement costs that add to basis.
- IRS, Publication 925, Passive Activity and At-Risk Rules, for the $25,000 allowance, its reduction above $100,000 of modified AGI, and active participation.