Good Afternoon Everyone, My name is Jordan and I am from Houston, TX. Currently in process of getting my real estate license and have a long-term goal of buying rental properties to eventually cover my monthly expenses and to give back to the people in my life who got to where I am at today. I tend to get discouraged when I analyze properties (in Houston) where the cash flow is slim to none. Maybe I am being too conservative on expenses and rate increases? I have been mainly looking on Zillow and have been using the BP calculator for my analysis. Because of this, I have even tried analyzing properties out-of-state such as in Tulsa, OK looking at properties that seem lower risk ($40K + price range) and better cash flow. It also seems so far away because I am just now starting to save for a property, as most of it has gone to build of my 6 month emergency fund (Sometimes I think about using my emergency fund to buy my first property). With investing right now seeming like a stretch, I kept thinking and thinking only to have the light bulb go off. What if I could get away with buying a property that may have $-100 cash flow and just eat the $100 loss? I have a full-time salary job and because I am super on top of my personal budget each month, I know that I will have about $1,000 leftover each month after all my personal expenses. So If I bought a rental property that cash flowed -$100 or - $200, I would basically just be paying $100 - 200 a month from my $1,000 that I have left over from my work income. The rest would go towards saving for more properties. With all that being said, is there anyone on here who has done this, fell into it by mistake, or would consider doing this? Or is this just a bad idea altogether? I am open to all opinions. Feel free to even tell me its dumb idea. I am just looking for some guidance on how to get started. Thank you, Jordan Petty

Would You Buy a Rental Property with Negative Cashflow?

Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes

8y

It depends on your investment thesis for the property. If you don't have better investment options, and have a clear exit plan in mind for the cash losing property, it could be fine. You need to make sure it is a good investment, though, and not just because you're itching to do something. or because you think that the market will magically always go higher.

I've had negative cash flowing properties because I was aggressively paying down short term debt on them, or because I was renovating vacant units. My investment plan required that they have a path to becoming significant cash flowing properties at some point, which they did.

13 Reply

Bjorn AhlbladPro Member

Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes

8y

I can forsee a scenario like Brendon described above. Deliberate short term repositioning opportunity to stabilize the property at much higher value and rents-then yes. Otherwise not a chance. CF is the objective even moreso at this stage of the market.

1 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

8y

I love properties with negative cash flow.

I love to pay my tenants to live in my properties.

I love to pay off the debt on my properties, instead of having the tenants do it for me.

I love knowing that I would be much further ahead financially if I didn't own any real estate.

Did I mention that I loved negative cash flow properties?

31 Reply

Daniel Harbuz

Specialist · Europe · Member since 2018 · 44 posts · 30 votes

8y

Hey Jordan

Your frustration with your local property market is shared by a lot of people. One solution has been to invest in an area you dont live in.

Sorry I dont remember all of the podcasts but there are at least 5 of people who earn money in one state then invest it somewhere with better deals.

Check out this book for an overview:

https://www.amazon.com/Long-Distance-Real-Estate-I...

5 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

8y

If you are seriously planning on investing in rental properties how many negative cash flow properties do you think you can afford compared to investing in positive cash flow properties.

The intent of investing is to have the expectation of making a profit. Unless you are speculating on appreciation or intending to add value buying a negative cash flow property is not investing.

7 Reply

George Pauley

Chandler, AZ · Member since 2017 · 174 posts · 269 votes

8y

I would add that your -$100 cash flow is likely optimistic. What happens when the renter moves out and it takes you a month to get another renter in? What happens when the water heater bursts and floods the house? There are always expenses above and beyond mortgage.

My first house was negative cash flow (not by choice). I didn't mind it so much when all I had to do was write a check for -$100 each month. My appreciation was way more than that. But when the property was transitioning renters, or I had to pay for repairs, I HATED that property.

8 Reply

Michael Plante

Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes

8y

personally me?

No never

Too many great deals out there for me to do that

3 Reply

Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

8y

@Jordan Petty I personally wouldn't buy a negative cash flow property - unless I was forecasting positive cash flow after improvements.

You had better be in a pretty strong financial position and have a very good reason for buying a negative cash flow property. It is absolutely not the right strategy for the vast majority of investors.

Just is case it wasn't clear @Joe Villeneuve was using sarcasm.

As @George Pauley said most new investors, and I suspect that includes you grossly underestimate the true expenses of a property.

3 Reply

Brad Sparks

Rental Property Investor · Lakeside, CA · Member since 2018 · 49 posts · 57 votes

8y

Open question: wouldn't depreciating the property for tax purposes erase the $-100? To Jordan: Do you plan on raising rent in a year to make it CF?

3 Reply

Frankie Woods

Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes

8y

@David Greene invests out of state and has written a book on how to do it. I invest out-of-state in STL and am looking into Colorado Springs from Albuquerque. As stated in Cash Flow Quandrant, when you buy negative cash flowing properties, you are limited in the number of properties you can own by the amount of extra cash you have from your "day job" or savings. If you buy positive cash flowing properties, your acquisition potential is virtually unlimited.

5 Reply

Conrad Hotchkiss

Anaheim, CA · Member since 2017 · 2 posts · 5 votes

8y

Don’t start your real estate investment venture with a loser. All three of my properties are out of state. Three different states as a matter of fact. I live in Orange County California where the property values are so high and the laws favor the renter. So far , three years in, mine are doing great. Texas was a big target a while back but I think the values rose too much. Good luck

5 Reply

Bill Werkheiser

Rental Property Investor · Glennville, GA · Member since 2018 · 4 posts · 4 votes

8y

@Jordan Petty (My fIrst post) Absolutely. I just bought a property which will have a negaive $200 cash flow because the property is in an incredible hot market where properties are on the market for less than 5 days. Most are being sold for more than listing price. If you can afford it and although nothing is for certain but if you are pretty confident that the property will increase in value and can afford it and especially if there are reasons to own it, I don’t see what’s wrong with other people paying for something you want/need. Obviously these should be the exception and not the rule.

4 Reply

Jordan MoorheadBusiness Member

Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes

8y

@Jordan Petty no I would not. The point of buy and hold investing is to make passive income. Paying into something each month is not what I’m aiming to do!

[email protected]512-888-9122

The Moorhead Team5140 Reviews

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3 Reply

Account Closed

Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes

8y

Originally posted by @Ned Carey:

@Jordan Petty I personally wouldn't buy a negative cash flow property - unless I was forecasting positive cash flow after improvements.

You had better be in a pretty strong financial position and have a very good reason for buying a negative cash flow property. It is absolutely not the right strategy for the vast majority of investors.

Just is case it wasn't clear @Joe Villeneuve was using sarcasm.

As @George Pauley said most new investors, and I suspect that includes you grossly underestimate the true expenses of a property.

Of course I'd buy a house with negative cash flow as long as there was a ton of equity in it. Then I'd turn around and sell that house and buy one with great cash flow.

3 Reply

Jordan Petty

OP

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Originally posted by @Ned Carey:

@Jordan Petty I personally wouldn't buy a negative cash flow property - unless I was forecasting positive cash flow after improvements.

You had better be in a pretty strong financial position and have a very good reason for buying a negative cash flow property. It is absolutely not the right strategy for the vast majority of investors.

Just is case it wasn't clear @Joe Villeneuve was using sarcasm.

As @George Pauley said most new investors, and I suspect that includes you grossly underestimate the true expenses of a property.

Haha I figured @Joe Villeneuve was being sarcastic. Found it a little humorous.

I would agree that I do not know the "true" expenses of a property. When I run the calculations, I am only using the higher-end of the "recommended" number/percentages. However, this still may not be close enough in real world.

A strong financial position makes sense. What if the economy tanks and I lose my job? Will I sustain long enough to off-set the negative cashflow AND the unexpected expenses?

I think it's tough sometimes for the "newer" people who want to invest because of all of the success stories we read or hear about. On top of that, people are saying to hurry up and just jump in, making mistakes. I agree about making mistakes, but what if those mistakes put you at a greater disadvantage in time and money vs. just waiting and building the cash for a down payment plus some to get a start on emergency expenses?

It's all about decisions. That is life pretty much.

2 Reply

Jordan Petty

OP

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Originally posted by @Jordan Moorhead:

@Jordan Petty no I would not. The point of buy and hold investing is to make passive income. Paying into something each month is not what I’m aiming to do!

That is a good point @Jordan Moorhead. I think the way I was looking at it is that you would still be building equity.

2 Reply

Jordan Petty

OP

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Originally posted by @Bill Werkheiser:

@Jordan Petty (My fIrst post) Absolutely. I just bought a property which will have a negaive $200 cash flow because the property is in an incredible hot market where properties are on the market for less than 5 days. Most are being sold for more than listing price. If you can afford it and although nothing is for certain but if you are pretty confident that the property will increase in value and can afford it and especially if there are reasons to own it, I don’t see what’s wrong with other people paying for something you want/need. Obviously these should be the exception and not the rule.

@Bill Werkheiser I agree it with you on that it shouldn't be the exception. Because, if you keep going like that for too long with multiple properties, then you will really be in over your head. The risk will definitely increase.

0 Reply

Jordan Petty

OP

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Originally posted by @Brad Sparks:

Open question: wouldn't depreciating the property for tax purposes erase the $-100? To Jordan: Do you plan on raising rent in a year to make it CF?

@Brad S - still learning about how taxes and real estate. Eventually, yes that would be the goal to raise rents.

0 Reply

Jordan Petty

OP

Realtor · Sugar Land, TX · Member since 2017 · 22 posts · 24 votes

8y

Originally posted by @Frankie Woods:

@David Greene invests out of state and has written a book on how to do it. I invest out-of-state in STL and am looking into Colorado Springs from Albuquerque. As stated in Cash Flow Quandrant, when you buy negative cash flowing properties, you are limited in the number of properties you can own by the amount of extra cash you have from your "day job" or savings. If you buy positive cash flowing properties, your acquisition potential is virtually unlimited.

@Frankie Woods - Yeah I have e-book of David's book. Need to read the rest of it.

I was looking at St. Louis as well since I visited the area for a work trip in October. Seems like a pretty affordable in the city, but lots of rehab needed. How are your investments doing there? What are good areas?

I agree if you rely on your work income too much, then you will definitely become in over your head the more you buy.

0 Reply

Randy Campbell

Rental Property Investor · Science Hill, KY · Member since 2017 · 6 posts · 1 vote

8y

@Jordan Petty Not recommended! Continue looking until you find one that makes you money. I’ll let others chime in on this as well but just an idea. I had 17,500 cash Found a house through an online auction company from a finance company that had previously bought it on the court house stairs. Went and talked to a local bank. Because the house was in desperate need of repairs I was able to get 100% financing for the house and all closing fees which was $32,000 by handing over my $13,500 as a draw on repairs that would need to be made. It was a two faze construction commercial loan. So before closing on it I had to come up with a list of all repairs and estimated costs $13,500. Based off that list they send out an appraisal company which deemed the property would have been expected to be worth 65,000 after all work was completed. So they deemed that the house would have enough equity that they would loan 100% of the cost of the house. They cut a check to the auction company and I quickly began the rehab process. As expected there was more that needed to be done than what was first expected and I ended up with the full 17,500 invested in the rehab. With that being said though I’ve got right at $50,000 in ( 32,000 mortgage) ( $17,500 cash ) on a property that now appraises for $80,000. Keep in mind I done 95% of the rehab myself over a 4 month period. Oh that brings up another point the loan being a construction loan was interest only for the first six months. Which averaged around $115.00 per month plus insurance which was around $60 a month I do believe. Just fixing to list the property for $675.00 per month. I’m no pro at this and just getting started but in the area I’m in with very low property taxes ($250 yearly) this should leave me with a pretty good ROI the best I have figured. Like I said I’m just getting started as well and would love to hear others comments on if how I got started was wise or not.

1 Reply

Alan Grobmeier

Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes

8y

@Jordan Petty, you are asking for monster trouble unless you have tons of cash laying around. In that case you will just have less cash laying around. ;-)

Values, almost everywhere, have eclipsed all-time highs. But rents are not increasing at the same rate. Even worse, affordability in many places is trending towards all-time lows.

If you absolutely have to invest, put tons down or buy all cash. And know you will probably own it a long time. ;-)

0 Reply

Jordan MoorheadBusiness Member

Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes

8y

@Jordan Petty find a property that you can do both in. Take your time and you'll find a good one. It took me 6 months to buy my first and I looked every day and made offers often.

[email protected]512-888-9122

The Moorhead Team5140 Reviews

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1 Reply

Christopher Leon

Realtor · Schaumburg, IL · Member since 2011 · 289 posts · 118 votes

8y

@Jordan Petty yes. Multiple times. If you know your market, and know what you can get away with, plus you are able to manage and maintain the asset, I’d do it again.

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

8y

Originally posted by @Account Closed:

Originally posted by @Ned Carey:

@Jordan Petty I personally wouldn't buy a negative cash flow property - unless I was forecasting positive cash flow after improvements.

You had better be in a pretty strong financial position and have a very good reason for buying a negative cash flow property. It is absolutely not the right strategy for the vast majority of investors.

Just is case it wasn't clear @Joe Villeneuve was using sarcasm.

As @George Pauley said most new investors, and I suspect that includes you grossly underestimate the true expenses of a property.

Of course I'd buy a house with negative cash flow as long as there was a ton of equity in it. Then I'd turn around and sell that house and buy one with great cash flow.

That's not the same thing. You are not buying the first house with the idea of renting it, so you are not buying it for the cash flow.

1 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

8y

I would absolutely buy a projected negative cash flow property if one or more of the following 1) it had a great value add that would provide equity significantly above costs 2) it was priced significantly below retail so that I had instant equity above cost 3) I was very confident of significant market appreciation (which I am not at this point) 4) I was very confident of significant rent appreciation.

In 2014 I purchased a property that in the purchase state was projected cash neutral. It met conditions 1, 3, and 4 and was slightly below market. I basically pulled out virtually all of my capital after the value add and it cash flows very well today and my equity is ~10x what I have into the property.

I have yet to purchase a projected cash negative but in the cash neutral at purchase property, I currently have ~$210k equity with ~$20k invested. I could afford many years of a negative $100/month and it would still be a good investment (but not as good as it has been).

I look at total return. If it is cash flow negative but provides significant return then I would purchase it.

Good luck.

4 Reply

Would You Buy a Rental Property with Negative Cashflow?

Would You Buy a Rental Property with Negative Cashflow?

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