How Important Is Cash Flow When You're Just Starting Out in Real Estate?

Question

Hey everyone,

I’m currently a college student at the University of Georgia studying Management Information Systems (MIS) at the Terry College of Business. I’ve been getting more and more interested in real estate investing and I’m trying to map out what a smart path might look like after graduation.

Here’s my situation:

• I’ll probably move in with my girlfriend after school, but I’m not sure where yet—we’ll likely be renting initially.
• My goal is to save up for a down payment over the next couple of years.
• Ideally, I’d love to house hack a small multifamily like a duplex—live in one unit, rent out the other.
• Long-term, I want to build a rental portfolio by living in properties for a few years, then turning them into rentals when I move into a new primary residence.

I’ll probably move in with my girlfriend after school, but I’m not sure where yet—we’ll likely be renting initially.

My goal is to save up for a down payment over the next couple of years.

Ideally, I’d love to house hack a small multifamily like a duplex—live in one unit, rent out the other.

Long-term, I want to build a rental portfolio by living in properties for a few years, then turning them into rentals when I move into a new primary residence.

My big question is:

How important is cash flow when you’re just starting out? Is it okay if I buy a property that maybe just breaks even or slightly loses money each month, as long as I'm gaining experience and equity? Or would it be smarter to wait until I can afford something with solid cash flow from day one?

I’ve been doing what I can to learn by watching YouTube videos, networking on LinkedIn, and hopping on calls with experienced investors to hear their perspectives.

What else should I be doing right now to prepare?
I’d love any advice from people who were in my shoes not long ago. Is there anything you wish you knew or did differently when you were just getting started?

Thanks so much in advance!

Alex Quinlan

Dan H. · Answer

Most new investors do not have the means to support a large negative cash flow property for an extended period of time.  In addition, most new investors significantly under estimate expenses.

However, once you have sufficient reserves to be unconcerned about the cash flow you should evaluate a property’s investment quality based on total return.

My last purchase had total revenue $3200/month less than PITI.  My under writing was showing -$5000/month when allocating for all sustained expenses & vacancy.   Not sure how many people have purchase a non commercial property that protected a worse cash flow outlook.   Today its value is nearly $1m higher than purchase and value add costs.  The market rent is $8k more than PITI.  From horrendous cash fliw to modest cash flow, but the big return is in its current valuation.   I could never make $1m cash flow on a non commercial residential in 3.5 years.  It is not possible.

Because cash flow is taxed in the year earned, it is my least desired source of return.   Note if I extract from the $1m of value ($750k at 75% LTV), that money is tax deferred.   Via 1031 I can tax defer it to another property.   When I die (Everyone dies) the property (or the 1031 exchanged property) gets a stepped up basis and no one ever pays a tax on the gain.

So the answer to the question of how important is cash flow depends significantly on your current finances and where you are in your RE investing journey.

Good luck

Caleb Brown · Answer

Starting out when you are looking at a house hack it won't cashflow if you are occupying a unit. You do want to run numbers when it's fully rented. House hacking gets you in the door using lower DP and you can reduce your housing expense. That will help you save and repeat. As far as cashflow as you accumulate units that's preference. You do want to make sure it's paying for itself. I would be nervous if it was negative.

Ned Carey · Answer

Negative cash flow is a high risk game. @Joe Villeneuve has some good posts on this.

House hacking works even though it is usually negative cash flow, because you have to live somewhere and it is a way to reduce your housing cost. That can allow you to same to invest more.

Jakob Mikhitarian · Answer

Hi@Alex Quinlan. I'm also a college student looking to get into real estate investing. I've been learning the ropes and fundamentals of it for the past 2 yrs and just recently got my license, and will be practicing as an investor friendly agent. Although I've heard cash flow is tight in some markets, having a positive cash flow on properties can definitely be important when starting out. It all depends how you approach it. Typically when people are young, they're not earning as much and that extra income can be a huge help with investing in more real estate or just simply having reserves for any issues you have with your current property. Looking from the other perspective, if you're not so worried about cash flow and more in it for the long term appreciation, that's also okay--just make sure you have reserves set aside. So however you want to go about it is a good strategy, as long as you have a plan, exit strategy, and knowledge of what you're doing

Aaron Zimmerman · Answer

If you're house hacking, the focus should be on reducing your housing expense and when you move out, the property should cash flow. Cash flow is a defensive measure to protect you from giving the property back to the bank. Of course, negative cash flow months happen, but it cant be for years unless you have deep pockets. At worst, you're wanting break even post move out.

Isaiah Hall · Answer

Hey Alex, good on you for asking questions and putting yourself out there early on! I started a few years ago by buying my first home, then turned it into a rental when I moved into a new place at the end of 2024. My goal has mostly been long-term appreciation, and that strategy made sense for my situation. The approach you take really depends on your goals, risk tolerance, and how stable your income or capital base is.

House hacking is one of the smartest ways to get started, especially coming right out of college. If you can find a small multifamily like a duplex or even a single-family with a rentable room or ADU, you can live affordably while a tenant helps cover your mortgage. You’ll gain landlord experience, build equity, and position yourself to buy again sooner, all while reducing your personal living expenses.

Even if you’re not ready to buy just yet, start planting those seeds now:

• Connect with investor-friendly agents who know how to find house hackable or buy & hold properties.
• Go to local investor meetups (check BiggerPockets local forums, Meetup.com, and Facebook investor/wholesaler groups).
• Talk to people who have done what you’re trying to do. People LOVE sharing their story, and it’ll give you clarity on what it actually looks like.

Connect with investor-friendly agents who know how to find house hackable or buy & hold properties.

Go to local investor meetups (check BiggerPockets local forums, Meetup.com, and Facebook investor/wholesaler groups).

Talk to people who have done what you’re trying to do. People LOVE sharing their story, and it’ll give you clarity on what it actually looks like.

On the cash flow side, some people are cash-flow or bust, but in reality, a breakeven or slightly negative property can still be a great investment IF you're buying in a strong area and have a long enough time horizon playing the long game. I personally have a plan to build my portfolio and liquidate ~20 years down the road for most of the properties I acquire. I'll likely do BRRRR deals as well to diversify my portfolio and leverage the cash flow. Just be honest about your finances and don’t underestimate repair, vacancy, and management costs. Having a solid emergency fund is key if you're willing to take that route.

Best of luck investing!

Roland VanLoan · Answer

Hey Alex, everyone's goals and objectives are different.  There are some folks who don't care about current cash flow and are buying for appreciation (maybe they've got alot of money in the bank and are willing to make big bets that take a while to pay off).  Personally, I can't afford to buy something that is going to cost me money each month in the hopes that someday it will generate cash.  I just bought my first property last week - a duplex in a midwestern college town - and my criteria was that it would have to at least cover the mortgage, taxes, insurance, etc. plus a reasonable projection for repairs & maintenance and property management.  Hope this helps, and good luck with your investing journey!

Alecia Loveless · Answer

@Alex Quinlan Hey Alex. I found a great duplex 3/1 and 3/3 that I house hack. It’s the best way to get started in real estate in my opinion.

When you reach the point that you’re ready to invest in something don’t shy away from “problem” properties.

My duplex was initially listed at $199K and the contract fell through 3 times because the initial inspection showed foundation problems. The first people under contract had a foundation guy look at it and he said $75,000 to Jack up the building, dig a basement and pour a new foundation.

The deal fell through 3 times based on this one opinion. Finally as it sat on the market for weeks I looked at it and brought in my own foundation expert. He said the fix was only $3000. I made an offer of $99K and got it accepted based on the necessary $75,000 quote.

Now 6 years later it’s worth more than $400K, the tenant pays for most of my expenses as well as most of my renovations. And each year when we close out the books there’s a small amount of cash flow that usually goes towards our family Christmas expenses.

Sometimes problem properties are easy to fix once you get your own experts. It can be a great way to get a nice property for a discount.

JD Martin · Answer

Can you afford to carry a property on the front end? If you can't, that's going to partially answer your question.

You should be calculating the investment value of any property as if it's fully rented at or slightly below market rates. That includes a duplex - it doesn't make a difference if you're living in one side or not. If you have a duplex that should rent for $1k per side, let's say, your gross income is $2k; you're just eating some of the cash flow right now by taking $1k of that money (the side you live in) and eating the profit right off the bat, because you're not paying for living costs somewhere else. For *most* people, this ends up putting them ahead because if they weren't "house hacking" they would be paying rent or a mortgage somewhere else, usually more extravagantly than the duplex they're living in (IE you would be renting a $2k house or paying a $2k mortgage). So if you get a duplex you're only at negative cash flow, even if you're living in it, if the costs of ownership exceed the FMV of both units. If you buy a duplex with a $1200 mortgage, including taxes, insurance, etc, and assuming the place is fully renovated with no capital or maintenance expenses, you're not "losing" $200 - you're gaining $800 (plus the value of principal pay down & tax benefits, if any).

How Important Is Cash Flow When You're Just Starting Out in Real Estate?

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