<prompt> Human: So some friends of mine keep talking about taking a loan out for a house, renting it out, using that equity to buy more houses, rent it, rinse and repeat.They always go on and on about how rich theyll be doing this, but it seems way too simple. What are some flaws and things to consider that i should let them know? I feel like theyre just going to put themselves in a big hole of debt  <response>: There are 3 catches from a financial strategy angle that you need to look out for.1 The presumption is that the rental amount received is MORE than all payments being made on the house Principal Interest Taxes Insurance HOA maintenance repairs. While there are many homes that would meet this criterion; there are many others that will not. Many rookies look at only the mortgage payment amount and think they are ok, because the rental is more than the mortgage; they find out later that they have a negative cashflow because of not considering other expenses.2 The second - if theres unplanned situations renter leaves, vacancy for months; unexpected damage or repairs; hike in taxes HOA hike in interest rates, if youre on an ARM or a variable interest rate loan - even if the house originally did meet the criteria, you may still have a negative cash flow for some time.3 Rinse and repeat : In practice, not easy. You need to get enough surplus to build up the second down payment; rental properties typically have more stringent requirements than personal home, where you could get a low down payment. Qualifying for additional loans is also more difficult, since your pre-existing debt makes you look riskier; you may get less, or a higher rate of interest.Not to mention the time and effort needed to manage multiple properties.Like all investment options, this can give good returns; this can also lead to losses. 