As you see, you'll need to do a little research and a little math. Once you've calculated your annual projected rent minus any expected vacancies, then subtracted all your likely expenses, you'll arrive at your annual profit. If it looks like you'll come out $1,200 to $2,400 ahead each year ($100 to $200 each month), you're doing well by industry standards. If you'll only be breaking even, or will lose money by renting, the only reason to keep the property would be if you're likely to earn high profits by waiting to sell.

Tax Deductions

The tax code is full of deductions for landlords. In fact, some landlords can claim so many deductions that it more than offsets all their rental income, resulting in what's known as a "net loss." This is especially common among landlords who don't own many properties -- particularly in their first year or two, when they tend to charge lower rents. Ending up with a net loss from your rental activities isn't a bad thing, though. Subject to certain restrictions known as the passive loss and at-risk rules, you may be able to deduct this loss from any nonrental income you have, such as a salary.

Here are some of the more significant tax deductions available to small residential landlords.

• Interest. Often a landlord's biggest deduction, this includes mortgage interest payments on loans to buy or improve rental property. It also includes interest on credit cards for goods or services related to the rental activity.
• Depreciation. You can deduct the actual cost (purchase price) of rental property over a number of years (27.5 years for residential rentals).
• Repairs. The cost of repairs to rental property (repainting, fixing leaks, plastering, fixing broken windows) are fully deductible in the year in which you pay for them.
• Local and long distance travel. Landlords can deduct travel expenses related to their rental activity. The IRS scrutinizes these deductions, however, so learn the rules and keep good records.
• Home office. Landlords can deduct their home office expenses, provided they meet certain requirements.