When asked how much can be saved on taxes through depreciation, the answer is not straightforward. This is because there are both advantages and disadvantages involved. Let's examine this in the context of looking for investment condos in Rockville.

Depreciation is used as a method to reduce taxable income by treating a portion of the building's value as an expense each year. However, at the time of sale, there may be taxes incurred from recapturing the depreciation taken. Since there are both pros and cons, the outcome can vary significantly depending on individual circumstances, so it is advisable to calculate this with a tax professional.

The rental levels in Rockville vary by source. According to RentHop, the median for all types is $2,571, with one-bedroom units at over $2,141 and two-bedroom units at over $2,634. There is also a clear difference between downtown and the outskirts, with one-bedroom units near downtown at $2,050 and those in the outskirts at around $1,530. Within Rockville itself, the choice between downtown and the outskirts can affect the initial purchase price and rental income balance, so calculating the cap rate separately by location is a good way to accurately identify the pros and cons.

Applying the 1% rule, the purchase price should be in the $250,000 range to meet the criteria. The median price for condos in Rockville often exceeds this benchmark, so when looking solely at cash flow from rent, the burdens may feel greater than the benefits. However, the stable demand and potential for price appreciation unique to Montgomery County can be viewed as an advantage.

Montgomery County has rent stabilization regulations in place. The annual increase cap is the lower of 3% plus the CPI-U or 6%, and from July 2025 to June 2026, a 5.7% cap will apply. While this presents a burden in terms of limits on increases for landlords, it can also be seen as advantageous for investors as it makes rental income flow easier to predict.

The property tax rate in Montgomery County is $0.9321 per $100 of assessed value, with an additional state tax of $0.112. The effective tax rate is around 0.87%, which is lower than the national average, but Rockville may impose its own taxes, potentially increasing the actual burden. This can vary by city and county, so it is important to check the exact tax rates before purchasing. When considering the taxes saved through depreciation alongside the annually increasing property taxes, it becomes clear that it is difficult to assess the pros and cons by looking at just one side.

Investment loans require a down payment of 15% to 25%, and a credit score of 620 or higher is needed for approval, but a score above 740 is necessary to secure favorable rates. Interest rates are typically 0.5 to 0.75 percentage points higher than for owner-occupied properties, and lenders only consider up to 75% of expected rental income as qualifying income. While these conditions may not seem favorable, they can also serve as a safeguard against excessive borrowing.

Management fees typically range from 8% to 12% of the monthly rent, and maintenance reserves are generally about 1% of the asset value each year. Landlord insurance tends to have broader coverage than standard homeowners insurance, resulting in higher premiums. For families considering school districts, it is advisable to refer to ratings from GreatSchools or Niche, but be sure to verify the assigned school before purchasing. If there are plans to later liquidate the property and move to another investment, a 1031 exchange can be used to defer capital gains taxes. While depreciation, rent control, and property taxes may seem advantageous or disadvantageous when viewed in isolation, looking at them together often changes the assessment, so it is wise to first draw the overall picture rather than focusing on individual items. This article is not investment or legal advice, and it is recommended to consult with a tax professional and a real estate attorney before entering into any contracts.