Looking for Ideas to Reduce High Negative Cash Flow – 2-Unit
Member since 2025 · 2 posts · 1 vote
Looking for Ideas to Reduce High Negative Cash Flow – 2-Unit
Most Popular Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votesYou are losing $2,500 a month in cash-flow assuming your $10K expenses also includes Vacancy/Capex/Repair reservees. If the $10,000 does not factor in these amounts, you might be losing more than $2,500 a month.
$2,500 x 12 months = $30,000.
If your property is appreciating $30,000 annually, you might be okay and this might be a 0% investment.
If the property is losing value, you are losing money in cashflow and appreciation(double whammy).
I would consider selling the property if appreciation is not atleast the cash-flow amount.
Basit Siddiqi CPA4.979 Reviews
9 Replies
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Miguel Alvarez:
I’ve got a 2-unit in San Diego that’s bleeding cash:
-
$10K/month all-in expenses (mortgage + MI + other costs)
-
$7.5K/month in rent income
-
Locked at 5.5% interest
-
Can’t raise rents for another year, and local rents are trending down
Even with future rent bumps, I’m years away from breaking even.
Possible moves I’ve thought about:
- Short-term rentals
- Expanding the units (lot space available), or adding a second story (to create more units).
I don’t have blueprints, so building would mean paying to get plans drawn.
What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.
San Diego is my market. Retail purchases without a value add with traditional financing requires patience to have cash flow as an LTR.
Seeing the purchase has already made, you will not be getting a desperate seller to sell off market below market price or good alternative financing.
That leaves
- value add: for you first effort you likely will not be adding much value in excess of costs. ADUs in San Diego have achieved terrible valuation. Value adds require work and have risks. I would only recommend this route if you were planning on doing more than just this project.
- alternate rent models: STR, MTR, rent by room. I have not done rent by room in many years but my son is currently doing it to live at reduced housing costs. Each tenant equates to additional work. If you rent a full unit, the tenant drama within the unit is not typically your concern. That is not the case when the LL rents by the room. It can produce better income. MTR and STR also require more effort than LTR. If you have a good location and unit and can be an outstanding host, you can have income that exceeds LTR by enough to justify the effort. I believe most units/hosts will not meet each of those criteria and will be challenged to exceed LTR income by enough to justify the additional work.
That leaves patience. Virtually every residential purchase in San Diego looks great 10 years after the purchase. Some look great much sooner than 10 years.. Getting to that point when every month is costing you money is the challenge.
Curious what sort of underwriting you did prior to purchase? Were you aware MF is rent controlled? Are your units below market rent? If you are city of San Diego, did you account for the new trash fee? You are likely at least 5 years and likely more from being cash neutral. If you are below market rent and a tenant vacates it could be faster.
Mostly I ask these questions in hopes of educating other newbie RE investors.
Because the expensive cap ex items last many years, I fear your expenses likely do not allocate properly for these costs and your cash flow is worse than you realize.
I believe the current market is challenging. Most local listings on the mls will have challenges similar to what you are experiencing.
Good luck
- Member since 2025 · 2 posts · 1 vote1y
Quote from @Dan H.:
Quote from @Miguel Alvarez:
I’ve got a 2-unit in San Diego that’s bleeding cash:
-
$10K/month all-in expenses (mortgage + MI + other costs)
-
$7.5K/month in rent income
-
Locked at 5.5% interest
-
Can’t raise rents for another year, and local rents are trending down
Even with future rent bumps, I’m years away from breaking even.
Possible moves I’ve thought about:
- Short-term rentals
- Expanding the units (lot space available), or adding a second story (to create more units).
I don’t have blueprints, so building would mean paying to get plans drawn.
What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.
San Diego is my market. Retail purchases without a value add with traditional financing requires patience to have cash flow as an LTR.
Seeing the purchase has already made, you will not be getting a desperate seller to sell off market below market price or good alternative financing.
That leaves
- value add: for you first effort you likely will not be adding much value in excess of costs. ADUs in San Diego have achieved terrible valuation. Value adds require work and have risks. I would only recommend this route if you were planning on doing more than just this project.
- alternate rent models: STR, MTR, rent by room. I have not done rent by room in many years but my son is currently doing it to live at reduced housing costs. Each tenant equates to additional work. If you rent a full unit, the tenant drama within the unit is not typically your concern. That is not the case when the LL rents by the room. It can produce better income. MTR and STR also require more effort than LTR. If you have a good location and unit and can be an outstanding host, you can have income that exceeds LTR by enough to justify the effort. I believe most units/hosts will not meet each of those criteria and will be challenged to exceed LTR income by enough to justify the additional work.
That leaves patience. Virtually every residential purchase in San Diego looks great 10 years after the purchase. Some look great much sooner than 10 years.. Getting to that point when every month is costing you money is the challenge.
Curious what sort of underwriting you did prior to purchase? Were you aware MF is rent controlled? Are your units below market rent? If you are city of San Diego, did you account for the new trash fee? You are likely at least 5 years and likely more from being cash neutral. If you are below market rent and a tenant vacates it could be faster.
Mostly I ask these questions in hopes of educating other newbie RE investors.
Because the expensive cap ex items last many years, I fear your expenses likely do not allocate properly for these costs and your cash flow is worse than you realize.
I believe the current market is challenging. Most local listings on the mls will have challenges similar to what you are experiencing.
Good luck
Thanks so much for taking the time to write such a thorough and educative response — I really value insight from someone who’s actively operating in the San Diego market.
For context:
-
I knew about rent increase limits going in, but didn’t expect to have to drop my rents as much as I did at the start. When I first listed, demand wasn’t strong enough and I wasn’t attracting favorable tenants. On top of that, I started having people break in to squat at night, which pushed me to secure tenants quickly.
-
I landed at about 12.5% below my projected rents. Thankfully, the tenants I ended up with have been great — they do STR/MTR rentals themselves (I allow subleasing).
-
According to Rentometer, my units are still under market. I’ve also tried the BiggerPockets rent estimator, but the confidence interval was low. If there’s a more reliable local rent comp tool you’d recommend, I’m all ears.
-
My $9,300 monthly total is the actual all-in payment, but I round to $10K for analysis to account for property tax increases, landscaping, and now the new trash fee.
-
The property is in Grant Hill — not the easiest neighborhood, but it's still pulling STR/MTR demand (budget-conscious visitors to SD, mostly).
-
I was also banking on more favorable interest rate cuts along with continued appreciation — both of which didn’t play out as quickly as I expected, throwing off my original projections.
Regarding your question on my underwriting prior to purchase — can you clarify what you mean specifically? I want to make sure I’m understanding/learning fully.
I’m willing to put more capital into the property if it means shortening the negative cash flow period. From your experience:
-
Have you seen STR or MTR operators in similar neighborhoods pull enough premium to materially close this kind of gap?
-
Any value-add plays short of a full ADU build that have actually penciled out recently?
-
Strategies you’ve seen for bridging cash flow in a soft rent market without over-leveraging?
-
And if you were in my shoes, would you stay the course, avoid major changes, and just let time do the work?
Really appreciate your perspective — this kind of detailed, reality-based feedback is gold.
-
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesWhy was your rent estimate off by 12.5%? fortunately you found good tenants.
Quote from @Miguel Alvarez:
Quote from @Dan H.:
Quote from @Miguel Alvarez:
I’ve got a 2-unit in San Diego that’s bleeding cash:
-
$10K/month all-in expenses (mortgage + MI + other costs)
-
$7.5K/month in rent income
-
Locked at 5.5% interest
-
Can’t raise rents for another year, and local rents are trending down
Even with future rent bumps, I’m years away from breaking even.
Possible moves I’ve thought about:
- Short-term rentals
- Expanding the units (lot space available), or adding a second story (to create more units).
I don’t have blueprints, so building would mean paying to get plans drawn.
What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.
San Diego is my market. Retail purchases without a value add with traditional financing requires patience to have cash flow as an LTR.
Seeing the purchase has already made, you will not be getting a desperate seller to sell off market below market price or good alternative financing.
That leaves
- value add: for you first effort you likely will not be adding much value in excess of costs. ADUs in San Diego have achieved terrible valuation. Value adds require work and have risks. I would only recommend this route if you were planning on doing more than just this project.
- alternate rent models: STR, MTR, rent by room. I have not done rent by room in many years but my son is currently doing it to live at reduced housing costs. Each tenant equates to additional work. If you rent a full unit, the tenant drama within the unit is not typically your concern. That is not the case when the LL rents by the room. It can produce better income. MTR and STR also require more effort than LTR. If you have a good location and unit and can be an outstanding host, you can have income that exceeds LTR by enough to justify the effort. I believe most units/hosts will not meet each of those criteria and will be challenged to exceed LTR income by enough to justify the additional work.
That leaves patience. Virtually every residential purchase in San Diego looks great 10 years after the purchase. Some look great much sooner than 10 years.. Getting to that point when every month is costing you money is the challenge.
Curious what sort of underwriting you did prior to purchase? Were you aware MF is rent controlled? Are your units below market rent? If you are city of San Diego, did you account for the new trash fee? You are likely at least 5 years and likely more from being cash neutral. If you are below market rent and a tenant vacates it could be faster.
Mostly I ask these questions in hopes of educating other newbie RE investors.
Because the expensive cap ex items last many years, I fear your expenses likely do not allocate properly for these costs and your cash flow is worse than you realize.
I believe the current market is challenging. Most local listings on the mls will have challenges similar to what you are experiencing.
Good luck
Thanks so much for taking the time to write such a thorough and educative response — I really value insight from someone who’s actively operating in the San Diego market.
For context:
-
I knew about rent increase limits going in, but didn’t expect to have to drop my rents as much as I did at the start. When I first listed, demand wasn’t strong enough and I wasn’t attracting favorable tenants. On top of that, I started having people break in to squat at night, which pushed me to secure tenants quickly.
-
I landed at about 12.5% below my projected rents. Thankfully, the tenants I ended up with have been great — they do STR/MTR rentals themselves (I allow subleasing).
-
According to Rentometer, my units are still under market. I’ve also tried the BiggerPockets rent estimator, but the confidence interval was low. If there’s a more reliable local rent comp tool you’d recommend, I’m all ears.
-
My $9,300 monthly total is the actual all-in payment, but I round to $10K for analysis to account for property tax increases, landscaping, and now the new trash fee.
-
The property is in Grant Hill — not the easiest neighborhood, but it's still pulling STR/MTR demand (budget-conscious visitors to SD, mostly).
-
I was also banking on more favorable interest rate cuts along with continued appreciation — both of which didn’t play out as quickly as I expected, throwing off my original projections.
Regarding your question on my underwriting prior to purchase — can you clarify what you mean specifically? I want to make sure I’m understanding/learning fully.
I’m willing to put more capital into the property if it means shortening the negative cash flow period. From your experience:
-
Have you seen STR or MTR operators in similar neighborhoods pull enough premium to materially close this kind of gap?
-
Any value-add plays short of a full ADU build that have actually penciled out recently?
-
Strategies you’ve seen for bridging cash flow in a soft rent market without over-leveraging?
-
And if you were in my shoes, would you stay the course, avoid major changes, and just let time do the work?
Really appreciate your perspective — this kind of detailed, reality-based feedback is gold.
Rentometer is my preferred rent estimation tool, but I do not simply use their number. I have Rentometer pro and eliminate included comps if they are not a decent comp for any reason. BP pro has a deal for Rentometer pro I forgot the exact details.
>My $9,300 monthly total is the actual all-in payment, but I round to $10K for analysis to account for property tax increases, landscaping, and now the new trash fee
Using actuals prior to large cap ex items hitting end of life means you are under estimating the expenses. In your underwriting how did you estimate the maintenance and cap ex?
>I’m willing to put more capital into the property if it means shortening the negative cash flow period.
buying the cash flow produces a poor return. You are likely better off keeping this extra money for reserves and suffering the negative cash flow>I was also banking on more favorable interest rate cut
Interest rates have fallen but with your rat being 5.5% I think it is unlikely that a rate reduction will help you any time soon.
>Have you seen STR or MTR operators in similar neighborhoods pull enough premium to materially close this kind of gap
I do not have experience of STRs in such a lower cost area. I suspect it would be a challenge. My STRs are in Mission Beach and Pt Loma.
>Any value-add plays short of a full ADU build that have actually penciled out recently?
The best value adds are property specific. It would be challenging to purchase a property without an identified value add and then to identify a worth while value add.
>Strategies you’ve seen for bridging cash flow in a soft rent market without over-leveraging?
Similar to the value add, such strategies are typically property specific and identified prior to purchase. I think it is unlikely that STR or MTR will work in that area. I suspect you can make rent by room work, but the effort will be higher than your current effort.
>And if you were in my shoes, would you stay the course, avoid major changes, and just let time do the work
I am fairly pro San Diego RE and believe virtually all acquisitions look good if held 10 years. However, buying in one of the lowest class areas in the city means all the issues with lower class areas. Even if it looks good at 10 years, you likely would have dealt with a lot of $hit to get there. I would sell (I never have sold in San Diego so coming from me this is something). I do believe if you hold 10 years and deal with all the issues, you will do fine but would it be worth dealing with all the issues and negative cash flow to get there?
There are a lot of easier investment options available than dealing with negative cash flow in a lower class area. By the way I used to live in encanto. Not sure how you would compare the 2, but I think I would only rate Logan heights worse than encanto. I know there are some good people who live in such areas. Problem is that there are a lot of people who live on the edge. There are people who do not take care of their rented units. It is challenging to consistently find good tenants that also do not experience an event that makes paying rent an impossibility.
good luck -
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- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Miguel Alvarez I see it is your first post so welcome to BP.
I would seriously consider selling and taking a loss if necessary. Why spend time and money fixing a bad deal why not start fresh with a new good deal?
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1y
Quote from @Miguel Alvarez:
I’ve got a 2-unit in San Diego that’s bleeding cash:
-
$10K/month all-in expenses (mortgage + MI + other costs)
-
$7.5K/month in rent income
-
Locked at 5.5% interest
-
Can’t raise rents for another year, and local rents are trending down
Even with future rent bumps, I’m years away from breaking even.
Possible moves I’ve thought about:
- Short-term rentals
- Expanding the units (lot space available), or adding a second story (to create more units).
I don’t have blueprints, so building would mean paying to get plans drawn.
What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.
You never win keeping a bad, no cashflow, property. The odds and physics are against you.
The perceived "appreciation" is an illusion on a loser property.
Sell. Cut the loss and the pain and the distraction and find a property that at least breaks even. Likely in a different state in this case.
Also, you can't borrow your way out of debt. Just thought I'd throw that in. -
- 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
You are losing $2,500 a month in cash-flow assuming your $10K expenses also includes Vacancy/Capex/Repair reservees. If the $10,000 does not factor in these amounts, you might be losing more than $2,500 a month.
$2,500 x 12 months = $30,000.
If your property is appreciating $30,000 annually, you might be okay and this might be a 0% investment.
If the property is losing value, you are losing money in cashflow and appreciation(double whammy).
I would consider selling the property if appreciation is not atleast the cash-flow amount.Basit Siddiqi CPA4.979 Reviews - 1yTwana RasoulBusiness MemberReal Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
The way I look at a property in San Diego depends a lot on the neighborhood. How much negative cash flow I am willing to carry at the start really comes down to location and long-term upside.
If it is a working-class, C-class area, I want a clear short-term plan to reach break-even and ideally positive cash flow within a year. If that path is not realistic, I usually move on.
In a coastal or high-demand neighborhood, I am more comfortable with some negative cash flow early because appreciation and rent growth tend to be stronger over time. For example, last year I did a 1031 exchange from a cash-flowing property in East County into a duplex in coastal North County about half a mile from the beach. I traded immediate income for what I believe will be much higher appreciation and rental potential over the next 7 to 10 years.
For Grant Hill, I would focus on getting your PITI covered. You might need to absorb other expenses like vacancy, capital expenditures, and maintenance for a while. If you do not see a path to that within the next year, it may be worth looking at selling if you can walk away whole. Before going that route, explore all your options, especially short-term rentals. ADU additions could work if you have something like a two-car garage to convert, but in many cases the numbers do not pencil out.
Compass5122 Reviews - 1yAdam KingBusiness MemberReal Estate Agent · San Diego, CA · Member since 2023 · 87 posts · 45 votes
I am sorry that you are stuck in this situation. Everyone here seems to have great insight/advice, I will see what I can do to help as well.
At $7,500, assume that your mortgage doesn't change, and you are able to maximize rental growth, you are still ~4 years from the break even point, from a cash flow perspective.
There are a few ways to reduce costs along the way: Renegotiate your homeowners insurance to ensure that you are getting the best rate, if you are covering utilities I would look into Solar and any form of water rebate, and if you are not self managing you should start as this can be your largest savings.
We are likely still a few years away from interest rates being low enough to make a refinance worth it. If you can hold out, a refinance + regular increases should make it so you are cash flow positive.
If you are okay with that, and have an internal rate of return that you are happy with, then mitigating losses and staying the course may be your best bet.
With the current state of the STR market, unless you are in a high demand zone, I wouldn't necessarily recommend it. San Diego has seen a decline in STR occupancy, which is forcing down rental rates.
For expanding, that is my typical recommendation as far as owning rentals. I have a few clients adding on right now. A 2unit, an 8 unit, and a 3 unit. All across the city.
If you need a recommendation for adding in ADU's quickly and cost effectively, I would be happy to make that connection. Ive used the same person for my personal residence, my mothers residence, and he has helped out many of my clients.
Adam King - NewTown Real Estate520 Reviews - Lender · San Diego, CA · Member since 2022 · 235 posts · 94 votes1yHey Miguel,
Quote from @Miguel Alvarez:
I’ve got a 2-unit in San Diego that’s bleeding cash:
-
$10K/month all-in expenses (mortgage + MI + other costs)
-
$7.5K/month in rent income
-
Locked at 5.5% interest
-
Can’t raise rents for another year, and local rents are trending down
Even with future rent bumps, I’m years away from breaking even.
Possible moves I’ve thought about:
- Short-term rentals
- Expanding the units (lot space available), or adding a second story (to create more units).
I don’t have blueprints, so building would mean paying to get plans drawn.
What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.
I know a small team who's offering 100% financing on ADUs in San Diego actually, and you don't pay interest until it's paid so sounds like it could be a good option for you, I'll DM their info
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