In today’s market, many of the core areas of Chicago don’t offer a large amount of potential cashflow for 2-4 unit buildings. Some buildings are still attractive investments despite the lack of annual cash flow. An investor or owner/occupant buyer can benefit by purchasing a core asset with strong tenant demand. Buyers should seek buildings where rental demand is high, rent growth is steady, and locations are near amenities and public transportation. Here are a few additional benefits of a breakeven cashflow investment:
- Tax Benefits – write offs, expense and depreciation deduction.
- Owner-Occupant Benefits – quiet enjoyment of property, pride of ownership, offset living expenses, control your building and investment while significantly offsetting your mortgage expense
- Long Term Equity Growth – by buying in the right area, a breakeven cashflow deal may produce long term property value appreciation and may hold its value better in a downturn
- Mortgage Principal Paydown – principal paydown is another way to gain equity in the building, unlike single-family home investments, your tenants help pay down your mortgage principal in a 2-4 unit building
In a breakeven cashflow building, the total net cash flow produced by the building is zero, however by offsetting your taxes with accounting losses you are sheltering your income which is a positive cash benefit. The additional benefits of reduced living expenses and equity growth are long-term wealth building investment attributes. If you are interested in a 2-4-unit rental investment in Chicago and are discouraged by low cash on cash returns, consider these additional investment benefits as you evaluate deals.