Purchasing a Property to Break Even?

Question

Can someone explain to me why you would (or wouldn't) invest in a property to break even and not make any cash flow with the rent?  Would this still increase your net worth and possible equity with the new property?

I'm trying to understand these terms as I go...I'm reading these forums and as much as I can on the internet before proceeding with my first investment.  (see my other post below in a different thread)

Net Worth?  (difference between assets - liabilities ?)
Cash Flow?  (physical cash coming in?)

Anyone recommend a good rag to read on real estate?

Thanks,

N/A N/A · Answer

I agree that it's better to not gamble on a house that doesn't have a positive cash flow.

But---- there is the train of thought out there that if you break even every month & just maintain, then someone else is paying your mortgage down for you. So even if the market isn't showing much of an increase every year, eventually you will have equity in the house & profit when you sell, or pull it out in a refi/heloc & use to purchase your next investment.

With the hot hot hot market we have had, many people have directed their energies into the 'fix it & flip it' type of investment.
I suspect with our now slowing market(at least where I am),
 investors will be looking to see which properties will be a good
long term investment.

Frank Adams · Answer

Roger wrote;

IMO 50% appreciation in 10 years is less than inflation, putting the money in a CD might have done as well.

Roger also wrote; I

Hmmm, so it's not really worth $150K?

all cash

Michael Mulrooney · Answer

Sounds like you are on the right track. I don't believe Real Estate Investing is good for people that has financial strains of their own personally. One bad deal could destroy you quickly.

Some people may purchase property and break even for tax purposes if they have a large income they are trying to shelter. This would give them very nice tax breaks, but so would donating money to charites for that matter!

N/A N/A · Answer

Quite a bit to consider.  In my previous post I mentioned about some references on the web I could read to understand and map out expenses and see if it's really worth it.

After considering the initial debt consolidation, I'm actually 8 months away from paying it off cash so i think I'll hold off on the 50k.  The only thing I would have left is a 14k car loan out of that 50k which is very manageable.  The CC's are what is killing me with high interest rates.  But as stated, they'll be gone by Q1 07.  During this time, I'd like to educate myself more and prepare myself for a purchase.

Thanks for the comments and any direction you can provide will be appreciated.

Wes Tuinstra · Answer

Generally,

You should not get into deals that don't cash flow.

However, that being said, if it truly is cash neutral, then
in the next few years the rents will probably be able
to be raised and then it will be cash flow positive.

There is also the potential of appreciation.

But....But....But....the value could go down near term,
taxes could go up, and rents stay flat, or you have
vacancies.

You have to be very financially stable to handle that. Are you?