On a simple example on a 1%/month property you’d make about 12%/year.

Over that same year your expenses run:

6%/year – property operating expenses
6%/year – mortgage interest and lost opportunity costs on the purchase price

Oh well your now out of cash. No payment for your trouble. And the above is assuming a really, really low rate for an investment property and only counts the interest. You will have to lay out payments towards the principle every month. Willing to do that on an “investment” with no profit? And btw, the size of the down payment does not matter. Whatever extra monthly income you make by having a larger down payment is lost in lost opportunity costs on that cash.

On a 2% property you have a decent investment, assuming you do not manage it badly.

On 2% you make a 24% income stream over the year.

12%/year – property operating expenses
6%/year – mortgage interest and lost opportunity costs on the purchase price

This leaves you with about a 6% return on the money you have at risk, with room for a reasonable interest rate, your principle payments covered, and breathing room in case something goes wrong.

More realistic example.

12%/year – property operating expenses
7%/year – mortgage interest and lost opportunity costs on the purchase price
~3%/year – approx average payment of principle payments.

~2% cash return on your investment.

http://www.nea.org/assets/docs/010rankings.pdf