In contract on first NEGATIVE CASH FLOW deal, and EXCITED! Thoughts?

[J. Martin]

I'm getting into a negative cash-flow deal to "speculate" on appreciation and future cash flow, after we can finally rehab the building, and using another cash flow deal to support it. Anyone else doing this? Thoughts?

I recently got in contract on a wholesale deal with a partner for a beautiful Victorian duplex in West Oakland, that I plan on buying 50/50 with another BP investor, where I am borrowing the majority of the capital at a tiered rate for the low-LTV and high-LTV portion.

I estimate there will be at least $100K in built-in equity after the cost of repairs, although it may take some time before the current tenants leave. There will also be good cash flow, and huge appreciation upside in this gentrifying area, once we fix up the interiors and rent to new tenants.

The negative cash flow will only be about $500-700/mo, which I can service out of personal cash flow, and is a bit less than the extra cash flow I'm making from my most recent positive cash-flow deal in East Oakland. I'm estimating that this will be more than made up for by the built-in equity, cash flow after renovations, and opportunity to get into an up-and-coming area for the long-term. In addition, the negative cash flow includes paying off the entire purchase/borrowings of the deal in 15 years.

After reading and researching even more, along with discussion with @Amit M. , @Account Closed , I've decided to use some of my cash-flowing properties to support more appreciation-oriented growth on other projects, as a balance toward my goal of building passive cash flow AND more net worth. (I'm sure my recent cash-out appreciation crushing my cash flow didn't hurt my decision either..;) I think this deal could add potentially a couple hundred thousand to my net worth over the next decade, so the $7k/yr or so in negative cash flow for the first some odd years until rehab doesn't seem too bad..

Is anyone else out there using their cash flow properties to support more appreciation-oriented plays? Or projects that need more turnaround or value-added? I sort of jokingly referred to my strategy as being like Warren Buffet's, where he uses the steady cash flow from insurance companies to buy distressed assets or companies that need some turnaround, like he did in the crisis, but I think that's being too generous.. lol

I'm sure I'll also get some grief for "speculating" on appreciation, but I have a thick candy shell, so don't worry about it ;)