Just a note about rental properties. When a mortgage company evaluates the profit/loss from a rental property they use something called an "occupancy factor." They assume the property is going to be empty 25% of the time. This a little conservative in my opinion, but when have you ever known a bank to not be conservative? Here's what that means in practical terms.

Monthly rent: $1000
Monthly income: $1000 X 75% = $750
Assume your monthly costs for the rental property are $700 (principle, interest, taxes, insurance, & HOA fees)
Net income = $750 - $700 = $50/month

So that ends up as: Gross income/.75 - Costs = Net income

Now, that does not take into account the tax benefits of the rental property. That is only a calculation of monthly profit/loss on the property itself. In this scenario, an adjusted income of less then $700 would be shown as a liability, not as income. That means that if you were renting it for less then $933 ($700/75%) a month, at least in the eyes of the bank, you are taking a loss on the property.

This is how we evaluate rental income for the purposes of determining income on a rental property that is being purchased, or current rental income when someone is purchasing another property.