Will buying condos in cash always cash flow positive?

[Tom Smith]

Will buying condos in cash in any market always cash flow positive? Any cases where buying condos in cash would not cash flow positive? Is the return for condos better if financed or purchased in cash?  

[Greg Scott]

Theoretically it is possible to find a market or condo complex where you can't cash flow, even with no debt, but that is probably rare.

Generally, compared to other forms of residential real estate, condos are not a good investment. Why? First of all you don't have as much control of your expenses, and HOA's love to under-collect annually and then sock you with large one-time special assessments to do repairs. Second, they don't appreciate as much. You also have to deal with an HOA that may be hostile to landlords or have restrictive rules that make renting out a property difficult.

Also, if your hope is to build wealth with buy & hold real estate, returns are terrible if you pay cash.  It's hard for people to get their heads around this so I like to use a simple model.   Stay with me here...

Buy one house for $100,000 cash.  Let's say you can rent it for $1000/mo.  Taxes, repairs, insurance, and everything else comes to $4,000 per year.   You just got $8,000 in cash flow.  With $100K invested, you got a 8% return on your money.

Now lets say you want to buy another house exactly like it but have no more to invest.  You take out a very conservative 50% loan on each property at 5% interest.  (So a $50K mortgage on each property for a total of $100K borrowed.)  Interest on those loans is $5K per year, but what has happened to your returns?    Before paying interest, you now have $16,000 in cash flow.  Take away the $5,000 in interest and you now have $11,000 in cash flow off of your same $100,000 for an 11% return.   

The returns magnify if you assume 4 properties at 75% leverage, and the returns grow exponentially if you start adding in appreciation.  As an added benefit, you are less likely to get sued if you have a mortgage.  Real estate leverage is GREAT!