A rental property generates insufficient income to cover its operating expenses and mortgage payments. For instance, if monthly rent collected is $1,200, but the mortgage, property taxes, insurance, and maintenance total $1,500, the property exhibits this characteristic. This results in the owner needing to supplement funds each month to cover the shortfall.
While seemingly undesirable, such investments can be strategically advantageous. Appreciation potential, tax benefits (like depreciation deductions), and building long-term wealth through leveraged real estate are key factors that attract investors. Historically, periods of rapid property value increases have made this approach viable, even profitable, for many. The ability to deduct expenses from taxable income, combined with the prospect of future price appreciation, can offset the short-term financial drain.
