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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 13953  
Subject: Re: Depreciation and buying a condo I may rent Date: 3/22/2013 12:23 PM
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Hi Bill,

Given the high numbers in depreciation and mortgage interest, it would seem that even renting $200 below the monthly mortgage would keep this investment above water on annual cost basis due to deductions while allowing for potential appreciation or my eventual return. Rough numbers:
Rent 2200
costs = 2750 (mortgage 2350 + management fee and expected maintenance costs)
deductions: ~1600 (Mortgage interest 350; depreciation 1100; taxes; 140)
With the depreciation it seems too good to be true and I suspect I am missing something.


Yes; Cashflow.

You're getting blinded by the dazzle of promised appreciation, special deduction incentives & tax loans (which is what depreciation is,) and dangerously at risk of getting suckered into negative cashflow.

R/e values rise, and fall.
Rent rates rise, and fall.

How many deals can you do at a negative cashflow?
How long can you wait out a down cycle at a negative cashflow?

Advice; Avoid obvious negative cashflow deals at all costs.
Over time, if you do enough deals, you'll have one or two sneak up on you anyway.
Don't make it easy for them to do so... don't volunteer for that trap up front!

Can you restructure this to make it cash-flow positive?

Dave
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