Tax advantage in negative cash flow property

[Manoj N.]

I am planning to buy a rental property in Boulder, CO. The property will result in slightly (about -$500 annual) negative cashflow after considering all usual costs (P&I, HOA, Repair etc). However, if I buy this property, this negative cash flow will be offset by a $1700 tax savings since another rental property I own generate considerable taxable income. I will get a positive cash flow of $1200 if I buy this property because I will owe less tax. Is this a good reason to buy this property ? Thanks

[Mike Dymski]

Profit in real estate comes from (1) cash flow (2) principal reduction (3) appreciation and (4) tax benefits. I would recommend calculating your total return (IRR) rather than just the cash flow. Having a property that meets your IRR targets and also offsets other taxable income is a common strategy, particularly for the wealthy. They buy for the return and for the tax benefits, not just the tax benefits.