Quick question about cash flow and appreciation.
Hello guys.
This site has been very helpful for me and encouraged me to start as an investor.
Again, thank you for responses and I am looking forward to get some again.
Typically, the more urbanized cities have lesser cap rate, and people are purchasing properties based on appreciation. For example, 1 room condo at the heart of boston costs around 400k and is being rented $2000 per month. If you consider all the fees (including mortgage payment), it will produce negative cash flow. However, property prices are going up for some reason.
I am really confused why this is happening. We know this type of properties already produce negative cash flow, and it seems like the rent is not going to increase tremendously. But, people are purchasing based on appreciation even though those buildings produce negative cash flow. How these types of buildings can be turned into producing positive cash flow in the future when numbers are really hopeless? Why people (including investors) are purchasing those buildings for what reason?
Any inputs will be appreciated. This can help me decide which field I should be concentrating more.
Thank you.