4 Essential Strategies for Taking on a Negative Cash Flow Property

4 Essential Strategies for Taking on a Negative Cash Flow Property

4 min read
Chris Clothier

Chris Clothier began building his rental portfolio in 2003 as a successful entrepreneur looking to diversify his investments. He quickly gravitated toward passive investing, establishing a portfolio of over 50 single family homes in Memphis, Tenn. As an original client of his family’s firm Memphis Invest (now REI Nation), Chris experienced firsthand what a passive investor endures when purchasing out of state. In 2007, Chris moved his company and family back to Tennessee, wound down his brokering company, and joined REI Nation as a partner and director of sales and marketing.

Since joining REI Nation, the business has grown into the premier turnkey investment company in the country and a standard bearer for best practices in the industry, managing over 6,000 investment properties for 2,000 passive clients. In addition to managing the development and implementation of sales and marketing processes, Chris serves as an ambassador for the company, working with the team to help potential investors define their purpose for investing in real estate and educating peer companies on best practices.

REI Nation clients’ portfolios hold a value of close to $800 million in single family assets in seven cities. The company has been featured as a six-straight year honoree in Inc. magazine’s list of the 500/5,000 “Fastest Growing Companies in America.”

In 2019, Chris’ team assisted 600 investors with purchasing just under 1,000 fully-renovated and occupied turnkey homes. Chris led the re-brand of his family’s company on January 1, 2020, from Memphis Invest to REI Nation.

Chris is also an experienced real estate speaker and addresses small and large audiences of real estate investors and business professionals nationwide several times each year, including IMN single family conferences, the PM Grow property management conference, and the Ignite conference in Las Vegas each December.

Chris continues to hold a sizable single-family rental portfolio in both Tennessee and Texas. Along with his family, he owns several commercial buildings in the greater Memphis area.

When not working with the team at REI Nation, Chris is busy raising five kids, operating a racing company in Memphis, and serving as CEO for The Cancer Kickers Soccer Club, a Memphis-based 501c3 providing comfort and care for kids battling childhood cancers.

Founded in 2017 by Chris and Michelle Clothier, the non-profit organization focuses on providing a team environment for kids to find encouragement and strength in their battle. The company worked with over 500 children from six countries in 2019.

Chris has been featured in stories published in Money Magazine, The New York Times, The Wall Street Journal, and DN News, as well as the Memphis Business Journal. In 2018, McGraw-Hill Publishing purchased Chris’ manuscript, The Turnkey Revolution, and worked with Chris to publish his first book in May 2018.

Chris also publishes two weekly blogs at ChrisClothier.com and REINation.com. Chris has also published articles on the BiggerPockets Blog since 2009.


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For many real estate investors, the ultimate goal of most investment properties is to achieve consistent positive cash flow. Without positive cash flow, your investments are pointless at best and draining your resources at worst. Negative cash flow doesn’t necessarily mean you need to jump ship — but you should plan well if you intend to salvage a property with negative cash flow.

Negative cash flow isn’t always a death sentence. Many skilled investors ride it out until the property has appreciated the value to make up for it or manage to turn their situation around entirely. Many of those same skilled real estate investors are actually purposely purchasing property that will cash flow negatively as part of their strategy. The negative cash flow aspect is simply a cost of doing business as the much bigger play is the appreciation in value or the value add of land, building and process improvement.

However, these are not investors who purchase a property expecting it to cash flow positive only to find themselves in a negative situation. The “accidental” negative cash flow investor is who we are really concentrating on today, and those investors absolutely exist and can recover.

But how? You can’t go into a negative cash flow situation flying blind. Investors would do well to keep their options opens through intentional planning when they find themselves in the weeds of negative cash flow.

4 Essential Strategies for Dealing with Negative Cash Flow

1. Make Your Business Plan Rock-Solid

You’re nothing without a solid business plan. The last thing a real estate investor should do is acquire a property with the mindset of figuring it out as you go. If you can survive the worst of it, you’ll usually emerge victorious — but don’t gamble on negative cash flow if you don’t have to.

Why is there negative cash flow? How are you going to fix it? Identify these factors and put a plan in place to turn things around. You can’t afford to grope around in the dark.

By the same token, investors would do well to overestimate their costs. You want to leave plenty of buffer in your plan to account for unexpected hiccups and setbacks. While developing a plan of attack, remember to have an exit plan in the wings as well.

I am a huge advocate of investors patiently working their investment plan. It is not enough to simply have a good investment plan. You also have to have the flexibility to change and adapt to a changing investment environment. When a property goes negative, an investor needs to be able to move quickly and adapt. Possibly a different rental class, a change in management or an updating of features is called for. Possibly a property needs to be refinanced into better terms, and at times, a property originally intended for long-term buy and hold needs to be sold — but only when you can make money!

Related: 4 Non-Negotiable Rules For Buying a Negative Cash-Flow Property

The bottom line for an investor is to quickly assess a situation and put a plan in place to make changes. If you have a solid business plan from the beginning, then a negative cash flow situation can usually be turned around and dealt with minimizing losses.

2. Have Alternatives Up Your Sleeve

Is the traditional model of renting not working for your negative cash flow property? Explore alternatives. You’d be surprised how effective simply changing up how your rental works can be. What kind of alternatives are out there? Here are just a few:

Bed & Breakfast

If your property is big enough, it might be possible to convert it from a run-of-the-mill single family home to a cozy, desirable bed and breakfast. Location, size and aesthetic are big factors here. Not every investor wants to enter this kind of business, which is a departure from the norm for sure. Still, a B&B or holiday rental could be an option for you.


Are you just ready to get rid of a negative cash flow altogether? Consider allowing your tenant to rent-to-own. It could be extremely helpful for them, as they likely are struggling for mortgage approval. Generally, renting to own takes 1-5 years in the short-term. Tenants pay an amount above the market-agreed rent cost, which they receive back as credit when they purchase.

Short-Term Rental

Is your property located near a hospital, business district or university? Offering short-term rentals (and charging slightly above normal for rent in a short-term lease) can not only turn negative into positive cash flow, but also offer a much-needed service in your area. For employees only in town for the duration of a contract or students who need housing on a semester-by-semester basis, short-term leases just might be the answer.

There are plenty of other alternatives to be explored by seasoned investors, many of which can turn a dud into a lucrative endeavor.

3. Have a Cash Reserve Ready

As they say, the best offense is a good defense. How prepared are you to handle negative cash flow? Without cash reserves at the ready, you won’t be equipped to handle long-term investments, which can go from positive to negative as the market changes.

A lack of cash reserves leads to compromise on your part — sub-par repairs, less-than-desirable tenants and generally being strong-armed by your lack of capital. This is the most common mistake that investors make.

That’s why investors should never sink everything into a single investment. You need that cushion to ensure you can make it through tough times without having to compromise your business plans, standards and good judgment.

Related: What to Do About Negative Cash Flow

4. Put Positive Cash Flow to Good Use

When you have positive cash flow on a property, put it to good use. So many times investors immediately put money to work on new watches, new clothes, maybe a vacation or two or some other kind of “toy.” Rarely do investors actually put this money off to the side for a rainy day fund. This causes a major headache for investors if the property suddenly faces a negative cash flow. If that negative instance lasts for an extended period of time, then the investor is in real trouble.

When investors use positive cash flow to reduce principal and fund a rainy day account rather than provide for a lifestyle, it puts them in a position to be very flexible and nimble should the property suddenly be cash flow negative. What is fantastic about this point for me is that an investor can reap the rewards of a property when it is paid for in entirety, and any leverage, which causes a negative cash flow in the first place, is reduced and retired. What I find so attractive about putting positive cash flow to good use is that I can get to a place where a properties cash flow cannot go negative. That is a big deal for me as an investor!

How do you cope with negative cash flow?

Share your tips in the comments! 

For many real estate investors, the ultimate goal of most investment properties is to achieve consistent positive cash flow. Without positive cash flow, your investments are pointless at best and […]