All or some expenses run through the PM and offset the income?

This requires expense, time, and marketing. 2.

Also, don't forget all of the expenses that go into setting up the house and maintaining utilities for the guests.

Higher cost of funds + higher operational costs = larger focus on operational efficiencyA positive that is sure to come from the rise in virtually all expenses associated with running a business is that owner/operators will be forced to tidy up their operations. 

@Alex WeslingHere is an article from the IRS that may help define depreciation on rentals: https://www.irs.gov/publications/p527With my clients with rentals, we will put most of the large rehab expenses as CapEx on the balance sheet.

We run lean expenses as well.

The results surprised me, so basically properties which are expensive than 300k are not making cash flow.

Especially with you being in Brooklyn, it is going to be very hard to cashflow under traditional bank underwriting as they include different expenses like maintenance and repairs, general admin, and others that greatly impact the cashflow of the property.

The market with the higher rent appreciation will always eventually have the better cash flow (assuming no refinance and rent appreciation exceeds expense increase).  

If you are going to develop I would try to pick the most expensive neighborhood you can find land in