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0 pointsonlyrealcuzzo4y ago0 comments

Cash-flow negative is a simple term. It means your cash out is more than your cash in.

You can't hand wave expenses and pretend you're cash-flow positive. You can do that with profitablity, though.

I did not forget inflation. I literally said a "a cash-flow negative house that does not appreciate and become even more cash-flow negative"!

You are taking appreciation for granted (which is fine, the Fed literally guarantees it now).

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sudosysgen4y ago

Inflation essentially guarantees appreciation at the rate of inflation for hard assets.

If you have a house with a 20 year mortgage at 3% interest where maintenance is 50% of the mortgage payment, with no appreciation in real terms and 2% inflation, 50% of what rent is becomes profit. (1/((1.03-1.02)^20))*0.66 = 54.5%

If you put down as down-payment 100 000$ for a property worth 1800$ in rent, which is realistic, you get 11 000$ in profit per year from a 100 000$ investment, which is great.

That's assuming no appreciation in real terms, ie, the cost of the house exactly matches inflation.

Therefore, renting is profitable even without appreciation of real estate in real terms.*

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