Building a Portfolio with Zero Cash Flow Properties

[Account Closed]

Lately I've been doing a lot of research on Zero Cash flow properties. Where an investor purchases a property with an investment grade tenant (Walgreens, CVS, Jack in the Box, etc.) with a small down payment (12-15%) and uses 100% cashflow generated to pay off the note (hence, zero cash flow). At the end of the term, the investor owns the Walgreens free and clear and would possibly renew the lease or 1031 to another property.

I know this defeats the purpose of investing for cash flow. However, for a younger investor, this seems like a great way to build a portfolio. I find it more than risky considering factors such as tenant default (ex. Rite Aid Bankruptcy), time value of money, Inflation (due to fixed rent rate), etc. I have heard of people doing this, but nothing specific.

Has anyone here had experience investing in zeros? I would love to hear any and all insight and experience.

Thanks in advance,

Andrew

[Jon Klaus]

These are not designed for the inexperienced or poorly capitalized investor. They can be an excellent tool for the real estate pro who needs tax shelter. They can throw off lots of depreciation (non cash expense), which can be as good as cash flow for the investor in a high tax bracket.