I'm 25 and entering the market as an investor and as a first time home buyer. In my market, positive cash flow on multi-family 1-4 units requires significant $ down. I'm considering buying a duplex, triplex or four-plex and live in one unit and rent the others. I'm still researching and crunching numbers. Does it ever make sense to buy a property with negative cash flow? I don't expect much appreciation over the next five years.
Real Estate Investor · SF Bay Area · Member since 2008 · 57 posts · 0 votes
19y
Hey, I'm also in the bay area. I know a man who is going through foreclousure on a duplex and wants to get rid of it totally. Its a fixer upper in Oakland. I believe he wants 245k but the seller is willing to sell very cheap. Once you fix it up a bit, it will be at least 600k. Email me for more info:
[email protected]
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
19y
I started out in multifamily, and I really enjoyed it. The returns are better, but you are more likely to have transient tenants and management issues.
Buying a property with a negative cash flow is a bad investment unless you have some kind of very strong upside. That upside either being that you are in a major appreciating area or you bought with a large amount of equity built in. If you are not going to have any residual income (cash flow) and you don't have any upside potential (appreciation or equity) then why are you spending $90,000 on it? Rather than this strategy I would recommend putting your money in some mutual funds or something and going and renting a place. Atleast you will be making money on your money, and you won't have to worry about repairs.
I think starting out in an owner occupied multifamily is a great way to get started, but make sure you are actually buying a good deal. Putting your money into something in which you have no profitable exit strategy is never a good idea. I like your idea of living in one side. It will allow you to get owner occupied financing on a fourplex or smaller. I think you can even go FHA if you need to. It will also give you some hands on experience with property management, which I think is always good starting out.
You make some great points Ryan. It seems my market is overpriced and it is very hard to get pos. cash flow. On the other hand, if I choose to buy a single-fam or condo I will be paying the mortage solo. Maybe renting is the best option in my overpriced market where rents have not kept up with values. I still am hoping to find a feasible deal with partial owner occupancy and renting the other units to help pay the mortgage. Why is it that investors are willing to buy negative cash flows? Appreciation, I guess.
I see a duplex with $2,200/mo. gross income with an asking price of $600,000. Is this a viable alternative to buying a $300,000 studio condo?
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
19y
Wow!!! :shock: Those numbers suck. I've heard about the insane appreciation of values over rents on the west coast, but when you really see the numbers, that's shocking.
The problem with these markets now is that there is no appreciation anymore. Two years ago, you could buy a negative cash flowing property and still make 20-30% on appreciation just by holding it for 6 months. Those days are gone for those markets, and now they are a black hole for investors. Without appreciation, these markets will either need to see severe devaluations or severe rent increases before they will become investor friendly again.
I would recommend researching other nearby markets that are more balanced on rents to value (higher cap rate) or find some ways to tap into some motivated sellers or distressed property that you can buy at a significant discount.