Real Estate

Buying vs renting out to a relative - calculation

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  • Apr 5th, 2022 12:10 pm
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[OP]
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May 6, 2010
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Markham

Buying vs renting out to a relative - calculation

We're considering getting a condo for our daughter. It would be a first time home buyer for her. The second option is to buy it and rent it out to her, through a company.


400,000 mortgage, assuming 4.59%, amortized over 25 years

Monthly Maintenance property tax
2,234 500 208 2,942


Land xfer tax, assuming 600k
17,000

Interest paid after 5 years
85,762

Purchase

Condo Appreciation, assuming 5% per year

765,769 - 600,000 = 165,769
Maintenace/Property 14,711
Interest 85,762
Total profit 65,295

Renting out

765,769 - 600,000 = 165,769
Maintenace/Property 0
Rental income 134,000 = (2,200*12*5)* 50% tax rate
Interest 0
Total profit 116,000 - assuming 50% tax rate, might be lower

Tax rates could be lower because it's not the main source of the company's income. I assume the maintenace and interest are expensed out in a timely manner. Left out in calculation are heat, water, etc because they would be paid by the tenant/us.

So, it's look like I'm better of renting it out to her. Okay, where did I mess up with my calculation? Please be gentle.
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