Why do people buy rental units that can barely pay itself?
 

I see people buying multi-unit properties that barely generate enough income to pay the mortgag, real estate taxes and insurance. God forbid if an appartment becomes vacant or some major work is needed.

This real estate market is insane, I tell you.:(

that is stupid, any one serious already has the proper calculators ready to forsee those issues and knows what the most they can pay is.

Your assuming people are being rational. It seem people just want to add real estate into their portfolio at any cost!

because it is also generating income in terms of appreciation.

an eviction that goes wrong that is also drawn out can cost you thousands if not tens of thousands on one single unit alone. Nevermind vacancies.

If you are not set up and prepared your little set of rentals become a money pit and then you loose it.

appreciation and all of the tax benefits


lots of reasons, too many to list

I know of investors in markets that haven't appreciated for 10+ years in a row ,not recently, but you buy for other reasons, it's not all about cash flow.

Well even at a loss in 30 years they still got a good deal of equity for very little cost.

It's a tax shelter vehicle. Many many tax benefits.

If you live in in 2 of the last 5 years and you are married you can exclude up to $500,000 in taxes and $250,000 if you are single


interest is a write off, the house can be depreciated
land improvements over 15 years, personal property over 5 years
the house over 27.5 years.

Many people are getting 1-2% option ARM loans
therefore if you buy 5 properties at 2% rates
and cashflow $1000/mo on each that's $5000/mo cash flow
today, now in reality it's not as good of an investment as it looks
but people get talked into it by loan officers

I don't beleive there are any of those advantages in Canada!
You depreciate a property here but they will hit you with a capital gain tax when you sell it.
I don't think we can write off the interest portion of a mortgage in Canada, but I'm no tax specialist.

I have a bunch of property for sale ... was thinking of making some threads to give GFY'ers the first stab at some deals.

LOL! Alex do yourself a favor and don't get into real estate what you are describing is the exact stuff I go for and I have 14 of them LOL!

DH

Well, that's a good question. Unfortunately the entire city of New York fits the scenario you described.

1 bedroom units sell for $800k. You can only rent them out for a max of $3,500. After you add in the maintenance of $1000 plus and taxes of $800 plus you have a $5,500 monthly note to pay. You are upside down an average of $2000 of any condo you buy inside the city for at least 5 years.

Why do it? Because you know for a fact that it will catch up within 10 years and almost double it's worth.

Too late. I already have a small multi-plex I puchased 10 years ago when people knew a thing or two about "return on equity" LOL.

So you actually buy properties that generate loss or not much net income?

People need to think long term. Even if the income being generated isn't paying the mortgage, it's a small price to pay.

Five or ten years on down the road that income will be generating income, not to mention they can write off the losses on their taxes as well as the interest. This entire time the property is going up in value.

What kills me is the people renting an apartment yet driving a $50k car.

buying negative cash flow properties may have made sense few years ago when market was red hot, but now a days it's asking to get fucked badly...

dumb business....

We buy cash flow positive properties that are in growing communities, some are better than others but all are cash flow positive.

DH

..Bingo.

Just as an aside. The real estate market is beginning to crash. I suppose all the ppl who won't be able to pay their mortgage will become renters soon.

People being said that since 2001:winkwink: