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Comment by anm89 | Hacker News Reader

This is pretty cool.

One thing that feels like a serious oversight though is that it isn't factoring in taxes. Rental income is taxable income. If you depreciate the property to avoid or reduce your taxable income you'll end up taking a big hit on the eventual sale as it will all be capital gains.

Another issue I'd take with this is that it's a lot smarter to focus on cashflow then gross income because odds are you aren't going to last 30 years to watch your net worth grow if you are losing cash on a monthly basis, even if you are technically building equity.

I'm currently getting out of being a landlord because while it was overall profitable, the margins are alot tighter after factoring in taxes and it's also a massive headache. That income certainly does not feel passive.

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Thanks!

Yeah you're totally right about taxes — it does make a big difference. We had to make simplifications somewhere, and taxes are quite country-specific so we didn't want to be too prescriptive. We hoped you could increase "Annual Costs" as a very rough proxy for taxes.

Cashflow is a really good point, and something we hadn't considered much. You can get a rough idea of cashflow in the "Net monthly earnings" section of the output, but it probably deserves more focus for sure.

Operational headache is interesting to account for haha — we'll add these things to the model explanation :)

You should probably default the Annual Costs to something like 5%, and let people bump it back down if they need to.

Anything that draws attention to that field, as 1% doesn’t draw attention.

In my case, taxes are roughly 2.5% alone. Then while a given year maintenance doesn’t feel like 5%, over 30 years you have to peanut butter the big expenses such as roof replacement, or kitchen renovation, and those really do add up.

By and large, all fields should be a bit pessimistic, let people bias them back down, or simply add a “risk” field that can fold in pessimistic outliers into the simulations.

>We hoped you could...

Given you're positioning this app and article as a means to answer the question on buying a home and renting it out, you should disclose these items (liabilities) to the reader and let them figure out the scenario for their local market, rather than hoping for the reader to do something.

Property tax is a large expense, and insurance is also a required expense if you have a mortgage (in the US). Finally, income you generate from the house (Rental Income) is taxed at your effective tax rate, and this will be a Large Liability at the end of each year.

Although there may be deductions you can take to minimize some of the expenses (in the US), you will be required to pay taxes on the income you generate and I suspect that's the case across all countries.

Just fyi, depreciating the property isn't a choice in the US. When you sell, the government assumes you did depreciate on your previous tax returns. If you didn't, you missed out on those deductions and depreciation will be reclaimed regardless.

"Another issue I'd take with this is that it's a lot smarter to focus on cashflow...."

Surely it depends on your aims? If its your pension you may not mind adding money in every month, as long as you get that lump sum/ steady income at the end.

For anyone using this model to make a decision: it looks like it doubles your rent input (maybe assuming two units?). Also not taking into account tax on rental income. You can work around these in how you set your parameters.

Another subtlety to the taxes and cap gains: the building per se can depreciate while the land value appreciates. This can make a big difference when it comes to selling. Highly recommend talking with an accountant.

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