The article GP posted addressed this (among a lot of other things... It's worth a read.)
>“Rachel’s landlord needs to make money. How could he/she possibly earn a profit under this scenario?”
>Here are many ways Rachel’s landlord could benefit:
>The landlord could purchase the property at a steep discount, such as through a foreclosure auction, short sale, estate sale, or by “driving for dollars” (making direct contact with the owners of distressed property.) This allows him/her to purchase the property significantly below market value.
>The landlord could be holding the property for the sake of inflation-protected wealth preservation, rather than as a cash flow investment. (Don’t assume all landlords share the goal of cash flow. Some simply want to diversify their assets.)
>The landlord could be making a speculative play on potential appreciation. (I don’t recommend this technique, but many landlords do this.)
>The landlord could have inherited the property.
The landlord could have purchased the property decades ago, paid off the mortgage, and now enjoys the cash flow. They don’t want to sell/trade into a different property due to the hassle involved, so they let this property ride.
The other secret is, many people, at the end of the day, simply make very little to no money as landlords. My parents were landlords for many years and broke even for all those years thinking that the profit was going to be right around the corner. Never came. The steps to being successful at real estate is not 1) buy house 2) print money like a lot of people think going in.
The other thing is, their calculations take in opportunity costs of having your money in your house vs having it in a better performing asset, which a lot of people simply ignore as "not a cost."
It's also highly dependant on your local market which one is cheaper.