Buying a Duplex With Very Little or No Cash Flow?

Question

What are your thoughts on buying a duplex on an appreciating market with very little or no cash flow?

Steven Foster Wilson · Answer

It is not the kind of strategy I am going for although I know a lot of people that do that. One of my mentors does that. He will only buy a property in an A class neighborhood. Now he owns prime RE here in Columbus, Ohio.

Remington Lyman · Answer

I do that in A locations in Columbus, Ohio

You could still be building equity. Just losing cash flow. I am more concerned about my new worth vs cash flow on one property

Michael Diossa · Answer

Firstly, it's important to understand that investing in real estate is a long-term game. While it's possible to make quick profits, real estate values can also fluctuate over time, and it's important to be prepared to hold onto a property for a while in order to maximize its potential return.

Secondly, buying a property with very little or no cash flow means that you will likely have to rely on other sources of income to cover expenses such as property taxes, maintenance costs, and mortgage payments. It's important to make sure you have a solid plan for covering these expenses, as failing to do so could put you in financial trouble.

Thirdly, investing in a duplex means that you will have two rental units, which could potentially increase your income in the long run. However, it's important to carefully consider the rental market in the area where the duplex is located and make sure that rental income will be sufficient to cover your expenses.

It may be helpful to consult with a financial advisor or real estate professional to get a better understanding of the risks and potential rewards involved.

Najma Osman · Answer

@Luis Pedroza

Some key take aways.. It depends on your goals. Do you rely on that income, or are you looking to build that wealth long term? If you are fine building that wealth in the long run, I think it is okay as long as you are cash flowing enough to cover all costs and to build a reserve.

Lee Hampton · Answer

If you are a novice investor in a normal (not California) market, I would advise against buying a duplex with no or negative cash flow.  You are banking on appreciation which will eventually happen but what if it occurs after a period of depreciation. There is no such thing as an "appreciating market", there are just markets, period.  These markets  go thru phases of appreciation, stagnation and depreciation.  Can you withstand a price drop and rental stagnation for 3 years.  Pure appreciation plays are riskier.   I’m not opposed to pure appreciation plays as I am a participant, but I have a cash flowing portfolio to mitigate the risk of my appreciation plays.   As a new investor, it is important to get the first one right.   Patience young grasshopper.

Cody L. · Answer

I've bought deals without cash flow a few times, but there was a bigger goal in mind:1) Bought a triplex in a 'hot' area of Houston (77006) because it was a good sized corner lot and I own an apartment complex on the full block across the street.  So more of a land play2) I bought an old duplex in another hot area of town.  Huge corner lot (8,250 SF).  I got the property for a bit under the dirt value (paid about $80/sf, worth about 90/sf).  So I'll just sit on it's cash flow until I want to build on it or until a builder wants it3) I bought a vacant commercial building on a small 4,500 SF lot.  In another 'hot' area of town (midtown).  Reason being is one owner owns the whole block except for the small sliver I bought.  So at some point a dev will want to build on the whole block and will buy my piece out.  (I joke that I own the whole entire block except for the part owned by one other owner)4) I've bought various SFHs in my fav submarket of Houston even if they just break even (or slightly under) just because I like the area, believe in it's growth, and want as many homes in that area as possible (and am not bothered by negative cash flow as they're a rounding error when it comes to the portfolio)

Jimmy Lieu · Answer

It depends on your real estate goals - if you already have sufficient income coming in and you can afford to lose a few hundred dollars a month but you're more focused on long term appreciation, then by all means you should focus on appreciation plays. If you don't have that income yet, then yes, you should focus on building your cash flow first.

Thu Hanna · Answer

I’m interested

Alfath Ahmed · Answer

Luis, it really comes down to your investing strategey. With today's market it is very tough to cashflow in great locations. I would only buy a duplex/4-unit an be okay with losing money from the get-go if it is in an A-class location and I know that the property will appreciate enough for me to re-finance and get all of my money back within 2 years.

Edward Adams · Answer

Buying a duplex in an appreciating market with very little or no cash flow can be a good investment strategy if your primary goal is long-term capital appreciation. Here are a few things to consider:

Pros:

- Potential for long-term capital appreciation: By buying in an appreciating market, you may be able to benefit from property price appreciation over time, which can lead to a substantial return on investment if you hold onto the property long enough.

- Opportunity to increase cash flow: Even if the property does not generate much cash flow initially, there may be opportunities to increase the rent over time, which could lead to greater cash flow in the future.

- Tax benefits: Owning rental property can provide significant tax benefits, such as depreciation deductions, which can help offset any losses or expenses.

Cons:

- Limited short-term cash flow: If the property does not generate much cash flow initially, you may need to have other sources of income to cover expenses and any mortgage payments.

- Risk of market downturn: While an appreciating market can provide the potential for significant returns, it also carries the risk of a market downturn, which could lead to a decline in property values.

- Difficulty in selling: If you need to sell the property quickly, you may struggle to find a buyer if the property is not generating much cash flow.

Ultimately, whether or not buying a duplex with little or no cash flow is a good investment strategy depends on your individual goals and circumstances. If you have the financial means to hold onto the property for the long-term and believe in the potential for appreciation, it may be a worthwhile investment. However, if you need short-term cash flow or are not comfortable with the risks associated with an appreciating market, you may want to consider other investment opportunities.

Buying a Duplex With Very Little or No Cash Flow?

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