Cutting your losses or holding negative cashflow?
I was listening to an older episode of bigger pockets today and they brought up the discussion of a negative cashflow rental, specifically in the context of turning a principle residence into a rental property. I could use some insight on the numbers below:
In the episode they discussed a principle residence that now cash flowed -100 a month. That said I can't get my mind around cutting the losses on the property because of the following:
Given the home had a 300k 30 year fixed, 5.25% loan, the payment would be $1,656 a month. I constructed an amortization table in excel and noticed that each payment had a principle portion of $344 from payment 1, increasing each month as the property is held longer.
What I am wondering is that a negative cash flow of 100 is actually a positive $244 payment as the principle portion paid down by the debt service paid by the tenant nets in the home owner's favor. So is it really such a bad thing to hold this fictitious property given that the vacancy rates are low, and given that tenants are of decent quality? Even a 1 month vacancy seems to be offset by the principle paid down during the first year in excess of $4,128 (monthly principle portion x 12 months, understand that the principle portion grows over time and these are just ballpark numbers).
What are your thoughts? Any first hand experience? In my newbie opinion the numbers seem to align that if the cash flow isn't detrimentally negative $100 a month is a small price to pay for the debt service paid down.