Buying in an expensive area - Numbers not adding up

[Tommy Barone]

I live in a small beach town where a run-down 900sq/ft house was listed at $400k.  This is typical in this area right now, little shacks going for over $300k and actual nice houses with a yard, out of reach.  I'm looking to get into a rental investment but all the math works out to about -$7k/yr in cash flow (at least).  There's just only so much rental income for winter (college: 9months at $1500/mo) and summer (8 weeks at $1500/week), and the mortgage will just be too high to generate positive cash flow in any rental scenario.  

My question is, what are the options?  Is it okay to have negative cash flow, as if you're just paying into a future investment? Do you just wait the market out?  

There was a podcast about a young couple who bought a 4plex in Jersey and beat the odds regarding the "can't make money or buy there"...but those aren't common where I live.  

I'd even house hack but it's all garbage around here and will need a lot of CapEx as well.

[Alexander Zurn]

@Tommy Barone I am in Newport and am in a similar situation. Prices are high, it's a sellers market and prime buying season. It took me almost a year and a half to find this property I am about to close on (MF, downtown Newport) - once rented it will pay for itself with some cash flow but until I move out I will be house hacking, I think this is the safest way to play it in this market, especially for my 1st rental.

The 4 benefits of rental properties are cash flow, equity, tax benefits, and loan paydown - with this deal I will be hitting 2 right off the bat (3 & 4) with the first two coming later, which is ok. You want to stay away from negative cash flow though... keep watching the market. In fact, watch that house - see when it goes off market. I wouldn't be surprised if the price drops before it is sold.