Negative Cash Flow Is Not a Tax Strategy

[William Thompson]

I’ve been hearing more investors say something like:

“The property barely cash flows, but at least I’ll get the tax write-offs.”

That always makes me stop.

Depreciation and legitimate rental expenses can absolutely help on the tax side, but they do not turn a weak property into a strong investment. And depending on your situation, rental losses may be passive and not immediately usable against your other income.

I tell investors this all the time:

Tax benefits are part of the return. They should not be the return.

If rising insurance, property taxes, repairs, and debt payments have eaten up your cash flow, run the numbers again before convincing yourself the deductions make everything okay.

Curious what everyone is seeing right now:

Would you still buy a rental with little or no cash flow if the appreciation and tax benefits looked strong?