Rental Property with Negative Cash Flow

[Sam Shah]

I am thinking of buying a property for $210,000 with 3% down. My goal is to own the property by letting some else pay for my equity. My rental income will be around $1,700 and total expenses will be $1,800, making net cash flow of $200/month (Total of $36,000 over the period of 30 yrs). Lets say if I account for $50,000 for total expenses for 30 years, plus 36,000 of negative cash flow - Total of 86,000. Assume there is no appreciation on property after 30 years. I will be able to own the property worth $210,000 by paying $86,000 + 3 % down pay. What's wrong with this analysis? 

[Chris K.]

@Sam Shah

Sometimes --- and I say sometimes --- rent appreciation can overcome the low returns in the first few years. For example, look at how fast rent has risen in the NYC metropolitan area. Such rapid rent increase is one reason why developers cannot build buildings fast enough around there. In any event, this is a pretty advanced strategy and there is a significant risk. Also, while Philadelphia is a nice area, the rents you get there are not really comparable to the NYC metropolitan area. So it may not be the best way forward if you do not have much experience. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.