Does it make sense to get a rental that won't cashflow?

[Ryan Blake]

I have been investing for awhile but have only recently started picking up properties that I know will not cashflow because of the prices in the area I invest (Dallas/Fort Worth) and the higher rates.

I am still picking them up because it will still pay down debt and provide me with depreciation that I can use to offset my flipping and lending income. It is also a little bit of speculation on my part that 1) home values will continue to appreciate at or above the inflation rate and 2) that eventually rates may drop 1 - 2% (I am at 7.5% on my most recent refinance) and will be able to do a cashout refi in 2 - 5 years.

What are other's thoughts on this? The first 10 years of my investing I would have completely suggested against doing what I am doing now. I thought of banking on appreciation and rate drops as pure speculation and akin to gambling. The only thing I can do to help justify it is that now with income in the highest tax bracket, I am saving 37% on any depreciation I can get.

Will someone either wake me up to my new found delusions or encourage me that I am still on the right track.

[Theresa Harris]

Not all properties will cash flow, especially in some areas.  One of my earlier rentals didn't cash flow at first, but after a few years, rents went up and now it does.  Plus the tenants have almost paid off my mortgage and as house prices went up, there is even more equity in the home.  For me it is about long term planning and I am fine with slow and steady of buy and hold.  While I sold my first rental, all of the others have been bought (and I sold one this year) within the last 9 years.  I was able to take advantage of lower interest rates and home prices.  I never would have thought prices would increase as much as they have, but I'm happy I bought when I did even if not all of them cash flowed.

I also have properties in two very different markets.  Looking at cash flow, the best is on area 1, but house prices have not changed a lot.  Area 2 has lower cash flow (one still doesn't cash flow), but house prices have more than doubled.  All of my current rentals cost about the same to purchase ($215-265K), but cash flow is so different and current house prices are as well ($325-600K)...and the one I spent the most for and cash flows the most, is now the one worth the least (still worth more than I paid for it 3 years ago).