You are looking seriously to purchase a duplex priced at $300,000 and feel that it is a pretty good deal. Moreover, the bank informs you that you might qualify with 10 percent down, or a first mortgage of $270,000, at a rate of 7 percent and a term of 30 years.

Okay, but what are you paying for the investment property, and will there be enough cash left over after making the mortgage payment to show a profit?

Let’s take a closer look and apply the Profit or Loss statement.

The rental property is estimated to generate $24,000 in gross income for the year and $8,400 per year in expenses. If you subtract the expenses from the income, it leaves a net operating income of $15,600 that can be used for debt service in one year—and the amount available for profit.

If you divide this number by 12, it will equal $1,300–which reflects the monthly amount available for debt service (your mortgage payment).

The next step is to determine how much money you can borrow with the $1,300 available for debt service, based on the rate of interest your lender is asking and the terms available to you through your lender.

The Amortization Schedule

Of course, you can use a mortgage calculator or real estate investing software to do it for you, but for our purposes, we will pretend you rather use an amortization schedule you obtained at a stationary store.

To continue, you open the amortization schedule and go to the page where you see the rate of 7 percent, find the 30-year column, and see what the $1,300 will buy for you in a loan.

After several computations, you determine that $1,300 in monthly payments equals $195,400 in borrowed money.

Is It a Good Investment?

The price of the property is $300,000, and the amount you can borrow to break even is $195,400. If you compute the difference, it leaves $106,400. This is the amount you would have to put down to break even–make no money and have no loss on the investment.

Here are your options. You can increase your chances for profit by putting the money down and reducing the debt service, or put less money down and experience a loss.

There are, of course, other options and some other aspects to consider while analyzing this rental property and determining whether this income property is a good investment or a poor one.

The point about real estate investing is this: figures don’t lie, and you always want the investment property to make sense based upon its performance, not yours. The numbers should depict how well the investment will feed you, not how well you can feed the property.