Net $0 Cash flow properties

[Alex Grainger]

*warning. extreme rookie question, take it easy on me*

I understand that if a property doesn't have positive cash flow, there is no way you could create passive income no matter how many properties you have. 

Is it still a bad thing to have someone paying you're mortgage and increasing your equity in a home? I'm having a hard time understanding why this is such a terrible idea, especially if my goal is long term.

Any insight on this is much appreciated.

[David Faulkner]

There are 4 profit centers in real estate investing:

1. Cash flow
2. Appreciation (forced and/or market)
3. Mortgage Pay Down
4. Tax benefits

All of the above are not static and change over time, with the market and property that you choose, and with how you buy and finance it. To be a successful real estate investor over the long term, you need to understand each of these and how to use them to maximize your profits throughout the lifetime of the investment.

There are certain conditions whereby I would buy a property with break even cash flow on day one ... in that case I would look to the other profit centers for my return initially ... for example I would buy below retail and remodel to force appreciation (2), and if I chose a well located property in a neighborhood with high demand and persistently limited supply of housing then with time and rent increases (2) and eventually paying off the mortgage (3) I would in the long haul get cash flow (3), and writing off interest, depreciation, etc. the whole time to lower my tax bills (4). So, it is not so black and white, but you should always be thinking about and analyzing all four of the above to get a complete picture of your investment. The best way to combine them all within a single analytical framework IMO is to project the financials out and calculate IRR.