Hi guys. I'm in the process of purchasing a property, but I just realized it has negative cash flow when I factor in the maintenance and vacancies. However, I think one of the main reasons it has negative cash flow is because I'm going fha and I am putting a small out of money down, which makes the principal and interest payment higher than it would be if i had put down 20% in a conventional loan. I think the deal could improve over time if I refinance into conventional down the line and put more money down. What do you think? Here are the numbers: purchase price is 270,000 property is a triplex with all 3 units already rented to long term tenants. the bottom tenant is moving out and that is where I will be living for a year. Principal and interest is 1300.00 taxes are 2400 a year insurance is 1800 a year rents come out to 2100 per month total for all three units. down payment is 3.5% Here are a few bonuses the property is in a really good neighborhood that is up and coming and this is a neighborhood I personally would want to live in for the next year. Also, the units are outdated: old kitchens, carpet, etc. With some rehabbing, I could raise the rent so that the total rent for all three units is about 2500 per month. So after i move out and get my unit rented. I think I'm looking at about a negative 169 a year or so. but if I refinance, pay down the mortgage and get rid of the PMI, things could look better. Is this doable? Is this a bad deal? what are your thoughts on this?

You can raise the rent by a total of $400 a month by rehabbing. How much will rehabbing cost? $3000+ per unit? It will take short of a year to recoup that investment for one door at a $400 month increase. In that year, somebody could move out destroying the carpet and you have to start all over again. It sounds like you fell in love with the property or the idea of being an investor. It's a bad deal.

@David Jay Is the first person with a reasonable non knee-jerk response to this question. First of all when you live in a property, its not an investment property. Its your home. You may rent out a part of your home, but its still your home. I guess basic arithmetic does not include percentages, variability and confidence limits on statistical projections. Therefore the $167/year loss on a projection reads to some as "NEGATIVE CASH FLOW" RUN! If she is getting to break even not counting principal pay down with only 3.5% down in a potentially appreciating market, that is by no mean a dead deal! I don't know the details of the area or the comps or anything but if there is any decent growth in that market and you can get essentially break even with 3.5% down, its at least worth looking at.

There are experts on BP that know far more than I do when it comes to analyzing deals. All I know from my experience is just your description above makes my blood run cold. I am having flash backs here to my last hellish REI experience in VA, thanks a lot!!!! :) I am kidding with you. Trying to make a point. I would never EVER do this. Want to end up with sleepless nights and a chapter 7 in your future? If not, I would reconsider. Maybe other experts here can shed more light than I can. I am only speaking from personal experience of dealing with rentals with thin profit margins. Sounds like to me that you want to be an investor but you lack the cash to get into your market. Either save up cash or find another market, or another way to invest in your market that allows you to make some money. I consider one of my main missions in life now to warn other new investors from doing deals that will make their lives a hell of negative cash flow, paying out of pocket to keep your bad investment afloat (can you IMAGINE THAT? Buying a property to make money, and now you have to pay your hard earned money to keep it going? I've been there. It is horrible), sleepless nights, collection calls and bankruptcy. good luck.

You know I think BP should have a HORRIBLE DEALS DON"T DO IT section. A mod could pick out obvious trainwrecks in the making and post them in that section. Not to beat up kay in any way! I mean this in a compassionate way to help her and others to warn them from doing crazy deals that will lead to misery.

Here is a two question test: Q1: Are you an investor, or a buyer? I'll give you a hint, ...Investors make money. Q2: How many "negative cash flow" properties does it take, to screw a REI into the ground...as in go broke?

Could this be a good deal even though it has negative cash flow?

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Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes

Could this be a good deal even though it has negative cash flow?

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