Reply to Why are people so obsessed with rental properties yielding positive cash flow?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Is there a firecalc type app that compares the ROI between a RE investment compared to S&P?  Assume a 20% down payment and a 1% gross rental return vs. a one-time S&P investment of the same 20%?  How would one fare if they did this in 1900 vs 2000 vs 2015, etc. over time? [/quote]

Of course real estate would give you more due to leverage on initial investment. Because with stocks you only get income on those 20% that YOU invested. In real estate, you get return on the whole 100% (your down+ remaining 80% financed by the bank). Of course if real estate prices call you are at a loss more than you would be in stocks. But in reality they don’t fall that drastically at lease in urban areas, and when it works well as a rental covering your mortgage and carry costs you can continue holding it . There is no point in selling real estate unless you want to do 1031 exchange or reinvest [/quote]

I'm the OP and people that keep calling me dumb don't seem to grasp this concept.  (BTW, for all those saying I should take a course in finance, I have a degree in math and understand finance/investments just fine.)  What these people don't get apparently is the value of leverage in generating returns.  And leveraging a property makes it more likely that it will not yield a positive cash flow, hence my initial question.  Of course, any property that you buy with no mortgage will give you positive cash flow.  However, you can boost your returns with leverage, and sometimes that means covering a $500 monthly shortfall between the rental income and PITI/other expenses.

But so what?  Most people put much more than $500/month (i.e. negative cash flow) in their 401(k)s and Roth IRAs.  And yet you never see the pearl clutching like you do with negative cash flow properties.[/quote]

Because that wasn't at all the question you asked.  Your OP had nothing to do with leverage, multiple properties, etc.  It focused exclusively on the rising property values of one single property over time.  To remind you, it was:

[quote]Until retirement, no one‘s 401(k) is cash flow positive and yet no one says those are a bad idea. Amazon has never paid a dividend and yet, if you had bought Amazon stock at many points over the last 27 years, you would’ve become very rich. Houses in the DC area are only going to go up over time (yes, we may be due for a correction or even a crash in the short term).

But over time, buying the right house in this area can be a very good idea as an investment, even if the rental income does not cover your PITI and all other miscellaneous expenses (vacancy, repairs, etc.). Why is there this obsession that rental properties have to have a positive cash flow? [/quote]

So, yes, you're dumb, but apparently for a different reason than we initially thought. [/quote]

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