Bad Investment Strategy?

Question

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $900,000

Cash invested: $180,000

Bought a negative cash flow property - about $1500 a month negative. I'll long-term rent it out and eat the negative cash flow, and do cost segregation and bonus depreciation. My fiance/soon-to-be wife holds REP status, which will allow us to take close to a 250k write-off in year one, which we'll use to buy cash-flowing properties.

What made you interested in investing in this type of deal?

It's purely a bonus depreciation play - although home prices may fall, I'm planning on holding this for the next 10 years or longer. I plan to use the huge tax savings from this property to buy cash-flowing properties.

How did you finance this deal?

20% down, 4.375% 7/6 ARM loan.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Eileen Kim - my fiance.

Joe Villeneuve · Answer

This is just a form of terrible math, and rationalization.  There is never a good reason to buy negative CF.  NCF just adds to the cost of the property.  The deduction you fell in love with, recovers only part of your cost...and is an illusion anyway.  Deductions recover cost already paid.  If you got a tax "credit", that would be different, but you would still be paying for it...so what would the point be.

Tell us again why you bought this property?

Mordy Chaimovitz · Answer

Next time ask if it's a bad strategy before you decide to do it.

but now that you are asking. It sounds pretty bad to me.