What 1% you might ask, 1% as monthly rent. i.e. Your target is to get to 1% of the homes purchase price as monthly rent. Until then you will lose money.
As for losing money, well, you don’t really want to lose money. You want a paper loss but real money income. In other words, you want depreciation to push you to zero or near zero. If your real tangible expenses put you negative, you don’t even have a tax advantage unless you’re a real estate professional.
If you can keep the actual rent, including vacancies & losses covering expenses: mortgage interest (not principal), insurance, maintenance, taxes, advertising, legal, etc. Then you’re getting the home for your time.
If not, it’s ironically one of things of value in the rich dad series: how many of those deals can you do where you’re lossing money?[/quote]
If you can get 1% in our current interest rate environment that is phenomenal. However, that 1% rule of thumb made more sense when bond rates are in the 4 + % range. In a world where long-term bonds pay 1.5%, 12% gross rates might be a signal that that particularly property carries more risk.
I do agree with the point about getting positive / neutral actaul cash flow, but neutral (or maybe slightly negative) phantom tax loss (whether taken or carried), is a good position.
