A $350,000 single-family rental

Income. GPR is the rent if the house is let all year and everyone pays. Vacancy allows about two and a half weeks empty a year between tenants, and Credit loss covers rent that never gets paid. What is left is EGI, the rent you can actually expect.

Expenses. Property tax is 1.1% of the price, because many places reassess when a house sells, so the seller's tax bill is not yours. Management at 8% is a typical fee for one house; if you manage it yourself, you are paid that in place of the manager. The Replacement reserve saves $1,200 a year for the roof, furnace and appliances that will need replacing. Leaving it out is the most common way a rental looks better on paper than in life.

The result. NOI of $17,594 does not cover $21,489 of mortgage payments. The house loses about $325 a month, and the DSCR (NOI over the mortgage payments) is 0.82, below the 1.0 where rent just covers the loan. NOI over the price is a 5.0% Cap rate, below the 7.25% mortgage rate, so every borrowed dollar costs more than it earns. That is Negative leverage, and it is common for houses bought with a mortgage at these rates.

Over a 7 year hold, with rent, costs and the house price each rising 3% a year and 6% of the sale price lost to selling costs, the levered IRR is 5.7%. Most of that return is the house going up in value, not the rent.

Most buyers want two things in year one. Cash on cash is the year's cash flow over the cash you put in; a 6% target asks the house to pay you back like a decent savings product before any growth. A 1.2 DSCR is the cushion many lenders want: NOI covers the mortgage with 20% to spare.

The offer solver holds the rent and costs where they are and lowers the price until both targets pass. A lower price means a smaller loan, less cash in and a lower tax bill. The answer is $240,413, about 31% below the asking price. Cash on cash is the target that binds; at that price coverage is already 1.27.

That gap is the honest lesson. At $2,500 rent and a 7.25% loan, $350,000 is a price for someone betting on appreciation, not on income. To close the gap you need more rent, a cheaper loan, more cash down, or a lower price.

BRRRR is a way to get cash back out of a rental. Suppose the same house came up tired, at $280,000. You put in $40,000 of work over 3 months, which makes it the $350,000 house above. That finished value is the ARV. In month 7 a new lender values it at the ARV and lends 75% of that, which repays the first loan and hands some of your cash back.

You put $118,400 in at the start and got $48,418 back, so $69,982 stays in. Year one loses $6,429 because there is no rent during the work. Year two, on the bigger new loan, still loses $2,574.

So the refinance does not fix the cash flow. What it changes is how hard your money works: less of it is tied up, and you bought below the finished value. The levered IRR rises to 9.2% from 5.7%. The risks are real, though: a rehab that runs long or over budget, or an appraisal below the ARV, shrinks the cash back out.

Back on the plain $350,000 purchase, with a 24% income tax rate and a 15% capital gains rate. The tax code lets you deduct the building (not the land) as if it wore out over 27.5 years. That depreciation is $10,564 a year, a cost on paper with no cash going out.

Interest and depreciation turn year one into a taxable loss of $11,918, so no tax is due. Rental losses are usually passive: for most people with a day job they cannot offset salary, so they carry forward and are used when you sell.

Selling settles the account. The depreciation you took is taxed back at 25% (Depreciation recapture), the rest of the gain at the capital gains rate, and the losses carried forward come off. Net tax at sale is $8,971, so the after-tax IRR is 4.8% against 5.7% before tax. Your own situation (income level, real estate professional status, a 1031 exchange) can change this a lot; ask a tax adviser.

Run the bills before the dream. A house that rents for $2,500 sounds like income, but after vacancy, tax, insurance, management, repairs and a reserve it nets $1,466 a month before the mortgage.

Price is the lever you control. The offer solver turns your targets into a number to bid, here $240,413. If the seller will not get near it, the deal is a bet on appreciation, and you should know that going in.

Strategy changes the return, not the rent. Buying below value and refinancing, or the tax treatment, moves the IRR. Neither makes a house that loses money each month into one that pays you.