property with negative cash flow

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property with negative cash flow

Kundan Chand
97006 · Member since 2018 · 23 posts · 3 votes

I am first time looking to buy a residential condo in Orenco station area Hillsboro for $290K, which rents for $1700. But when i put in the numbers, the online calculator shows negative cash flow. I was thinking that if someone else pays down my mortgage, it should always be no brainer but seems like people in this forum always insist on positive cash flow. I have a great paying full time job which i hope to continue another 20 years. Then why is it a bad idea to buy property with negative cash flow. 

http://www.calculator.net/rental-property-calculator.html?cprice=290000&cuseloan=yes&cdownpayment=35&cinterest=4.75&cloanterm=30&cothercost=3000&cneedrepair=no&crepaircost=10000&cafterrepairvalue=150000&ctax=3700&ctaxincrease=3&cinsurance=800&cinsuranceincrease=3&choa=4800&choaincrease=3&cmaintenance=2000&cmaintenanceincrease=3&cother=200&cotherincrease=3&crent=1600&crentincrease=3&cotherincome=0&cotherincomeincrease=3&cvacancy=5&cmanagement=0&cknowsellprice=no&cappreciation=3&csellprice=200000&cholding=20&csellcost=6&printit=0&ctype=&x=121&y=22

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Ron Fletcher
Leclaire, IA · Member since 2016 · 161 posts · 130 votes
8y
None of these comments were to discourage you but they are reality. Keep searching for a property that at least meets the 1% rule.
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  • Allan Anderton
    Magna, UT · Member since 2018 · 25 posts · 4 votes
    8y

    because the idea is for you to not put money into your property basically your taking on another bill for yourself for 30 years not to mention any damage that it may have happen to it and other money obligations 

    2Reply
  • Matt Millard
    Lewisville, TX · Member since 2015 · 341 posts · 264 votes
    8y
    I wouldn’t be investing in syndications passively now if I broke this rule. And I know I’m done investing in DFW forever outside of mobile home parks because nothing cash flows anymore not even close. Most of your income in Texas goes to property tax & it’s hard to even house hack anything within 100 miles of here. Follow the rule. Or it’s gambling. Prior comment was spot on...
    0Reply
  • Stacey Paulin
    Investor · Atlanta, GA · Member since 2015 · 139 posts · 98 votes
    8y

    You have to ask yourself why you invest. Are you investing to make a profit starting TODAY, or are you speculating and buying a liability? You can't become emotional about real estate. The deal either makes money or it doesn't. I would never knowingly enter into a deal that would take money out of my pocket every month.

    I think you may need to evaluate why you're investing in the first place.

    0Reply
  • Koob Moua
    Rental Property Investor · monroe, GA · Member since 2013 · 82 posts · 15 votes
    8y
    Negative cash flow will get you out of the game faster! Highly recommend you not do this deal as everyone is saying, you need to figure out why you are in this business. Also is it because you feel emotionally attached to this property and you want to buy it? And look at it this way, what if you get laid off or hurt and can’t cover the other expenses, and now you lose the property and your hard earned money into this deal. As the pros in BiggerPockets says, never buy a property that gets negative cash flow. You want the property to sustain it self w/ positive cash flow I have my first property under contract and I have analyzed 20-30 properties and most of them suck. So keep looking for another property if possible! Hope you make the right decision. I believe we are all here to help you make the right decision. And that decision is to help you be successful.
    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    290k with 1700$ rent .. your deal is no deal bro . It sucks to put it bluntly . Would you buy stocks guaranteed to go down in value each month ? Would you put your money in a savings account where the fees cost you more than the interest every month ? In no other other investing product does this lunacy even get talked about butvreal estate . You are supposed to make money not lose it ! Why on earth would you willingly lose money just to own something in 30 years . Even a small loss each month can mean big trouble if you need a 10,000$ roof . You have no reserves from any income ...Then what ? ..Factor in taxes and insurance repairs and it makes no sense at all . Yeah you may get some appreciation but maybe you won’t ! Maybe they will build a large low income housing complex near you in 5 years and crime spikes way up and the area goes to crap maybe they will build a prison nearby or there is a shooting on that street . Maybe a tire recycling center moves in . You have no clue what the future is . You can’t bank on appreciation alone .
    1Reply
  • Patrick Watson
    Flipper/Rehabber · Bunker Hill, WV · Member since 2018 · 15 posts · 6 votes
    8y
    I’m a newb, but I have learned through research your rents should be at minimum 1% of costs. So if you have 290k in it, rock bottom minimum rent should be $2900. Ideally even more. There are a lot of variables in play with any deal, and in the very long you may still make money, but... if you find a better deal you can make money now. Financial independence is the goal, so either negotiate a bette price or move on.
    1Reply
  • Dick Stevens
    Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
    8y

    If you like to throw away money just send me a check every month.  This way you won’t even have to deal with tenants.  No brainer, right?

    2Reply
  • Nicholas Moran
    Rental Property Investor · Jamaica, NY · Member since 2018 · 51 posts · 7 votes
    8y
    I’m a newbie fallow the 1% rule, I practice couple prop ties with my excel calculator and was wondering if I was doing something wrong when cash flow was negative.
    0Reply
  • Steve Trang
    Real Estate Investor · Phoenix, AZ · Member since 2014 · 58 posts · 24 votes
    8y

    @Kundan Chand if you have negative cashflow, it'll be harder when the property is vacant to pay the mortgage. Or when the roof needs to be replaced or AC goes out, negative will be REALLY negative.

    Besides that, though, there are so many opportunities with positive cashflow. Why would you waste time with a negative cashflow property?

    1Reply
  • Nicholas Moran
    Rental Property Investor · Jamaica, NY · Member since 2018 · 51 posts · 7 votes
    8y
    This one I did on a commercial has a good cash flow: https://docs.google.com/spreadsheets/d/1-uTd7MjbSub3mZ1kG-ka5s1BMkThfI29YV36Q1OkR8A
    0Reply
  • Daniel Suarez
    Fairfax, VA · Member since 2017 · 183 posts · 58 votes
    8y

    Well it’s not entirely true that you will be losing money but think about this. Your starting investment is 50000, and your gonna be paying 450 a month so that’s 162000 in 30 years so you’re investing 222000 overall. 

    Now if the house apreciats by 3% a year the house will be worth $500000 in 30 years the time you sell. So overall you will make 228000 over 30 years or 110% aprox. Now that May look ok, but it’s only a 3% yearly gain which is ridiculously low for such a big risk (of course if thinks go right)

    So it would be better to find a good deal instead or do something else with that money even bonds will give you a better result.

    0Reply
  • Kundan Chand
    OP
    97006 · Member since 2018 · 23 posts · 3 votes
    8y

    thanks guys for the discouragement even before i start my 1st real estate business :-(. How else can i invest $100K and make decent returns in this market?

    0Reply
  • Kundan Chand
    OP
    97006 · Member since 2018 · 23 posts · 3 votes
    8y

    Ho about another townhouse worth 280K, HOA = $150 per month renting for $1700. The cash is coming out postive $50 per month.

    http://www.calculator.net/rental-property-calculator.html?cprice=280000&cuseloan=yes&cdownpayment=35&cinterest=4.75&cloanterm=30&cothercost=3000&cneedrepair=no&crepaircost=10000&cafterrepairvalue=150000&ctax=3000&ctaxincrease=3&cinsurance=800&cinsuranceincrease=3&choa=1800&choaincrease=3&cmaintenance=2000&cmaintenanceincrease=3&cother=200&cotherincrease=3&crent=1700&crentincrease=3&cotherincome=0&cotherincomeincrease=3&cvacancy=5&cmanagement=0&cknowsellprice=no&cappreciation=3&csellprice=200000&cholding=20&csellcost=6&printit=0&ctype=&x=117&y=17

    0Reply
  • Dick Stevens
    Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
    8y

    What’s wrong with you buddy?  If you buy at $280k as an investment, at 25% down, you’re pulling $70k out of your pocket.  Ideal situation is $50 per month profit, so $600 per year.  That equates to a 0.8% cash on cash return.  Does that sound smart to you?  You’ll never realize the full $600 anyways after unplanned repairs and maintenance.

    1Reply
  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    8y
    Problem is your market is unsustainably over valued. You just may have to be patient and wait for the market to cycle down. The disconnect between rent and market value is one such indicator. But if you feel you have too much money in stocks and want to diversify into real estate, plug your numbers into a tax return schedule e and see if you can come out ahead after depreciating your property. I have seen people buy in cash near a train station and not cash flow. Paid 289k renting for $1950 month. Someone with 289k cash can’t be completely stupid....You’d think. What is worse case? 25% loss of equity? If you can stomach that and can get one of the units truly walkable to the train station.... Might be better than a CD. But the market will cycle down, it always does. Just when? And will you use your reserves to ride it out and have nothing left to double down?
    0Reply
  • Ron Fletcher
    Leclaire, IA · Member since 2016 · 161 posts · 130 votes
    8y
    None of these comments were to discourage you but they are reality. Keep searching for a property that at least meets the 1% rule.
    3Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    8y

    Kundan Chand you have already found the right place! Follow the advice here and apply the formulas. This is a difficult time in the market cycle to find decent deals; but they can be found. Most of us are facing the same challenge-finding cash closing properties. In my case I decided my investments can be no further than 1 hour from home, and they have to meet the 1% rule. I drew a circle around our house with a one hour limit and focused on getting to know every town and neighborhood. It is not easy in today’s market; but I was able to find one good MF deal this way and hope to do some more. Best of luck to you Kundan!

    0Reply
  • Storm S.
    Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
    8y
    If you can’t find any deals you can look into syndications or reits
    0Reply
  • Patrick Hall
    Ridgefield, WA · Member since 2013 · 60 posts · 20 votes
    8y

    Being from the Portland area, I don't even glance at this market unless its something weird, a mid-size RV park, or something.....Prices are just not conducive to any kind of rental investment.  I know there are flippers but that is even risky as everyone here thinks their dumpy ranch is worth 450k.  With houses starting at 200.00 a SF, the rental options are pretty small.  

    Why RV parks?  Because for about 500.00 a guy can park a nice RV and have a home that doesn't cost 3,000.00 a month.  Check em out.....everyone is full with a waiting list.  

    I suggest broadening your market range.  

    IN the meantime, hold here.  With the thousands of rental units going up in the pearl/SW Waterfront, Downtown, East Side Close, Slabtown, their will be a crash in the rental market.  I foresee a fire sale on rentals turned to condos in the next 5-10 years.

    Happy hunting.

    Patrick

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y
    Originally posted by @Kundan Chand:

    thanks guys for the discouragement even before i start my 1st real estate business :-(. How else can i invest $100K and make decent returns in this market?

    ' Thanks for the discouragement' LOL

    I'll rock the boat a little and add that some of my best investments have had break even or negative cashflow.  I always buy under market, but not all of my nicer houses have 'cashflowed' until I sold and made a buck or 2.   No expensive repairs or cap ex, no drama, min vacancy,  IRRs in the 25%+.  

    I'll also consider whether to get a 15 or 30 yr loan case by case.  Sometimes the 15 yr rate is much lower or from a private lender with no fees, that save me $4k a pop.  Negative cf a couple hun a month but principal paydown of  $600.  Negative cf, but net worth positive.  Same with my primary that has an ADU. Networth positive every month, but negative cf.

     Cashflow can be manipulated (like with  a neg am, 40yr loan) and is but one small metric. Your 30 yr loans may have $200 in cf, but I have 15s paying down at $1250/mo.  Your $200 'cf' vs my $1000 net balance sheet gain.  

    Always buy at a discount, though.  You haven't talked about PP vs market value once. Are you buying a deal or just one hand in the back of the frenzied pack, waving in the wind?

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    If you’re not finding deals locally you may want to look out of state, that’s what I did. The 1 percent rule just a starting guideline. Now that I’ve become a bit more experienced I look for 1.5-2 percent rule.
    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y
    Originally posted by @Kundan Chand:

    thanks guys for the discouragement even before i start my 1st real estate business :-(. How else can i invest $100K and make decent returns in this market?

    "How else"? Please, keep suggesting other properties*. Did someone say that you'd be getting 0.8% per year return on your $100k outlay? That's hardly good business, right? Welcome to BP.

    * But, if buys don't firstly meet the "1%/m Rule", are you only relying on future appreciation?

    Yes, we are trying to be encouraging. [You shouldn't thank us if we started pulling our punches!]

    0Reply
  • Say Teoh
    Residential Real Estate Broker · Portland, OR · Member since 2016 · 92 posts · 31 votes
    8y

    Hi Kundan Chand, welcome to BP.  I am have a rental near Orenco Station, near the 53rd ave park. I am lucky to get in early in at 2003 at 230k, it went down to 180k during the crash and now it is up 350k. I refinanced it few years ago, and now it cash flow around $800 a month net. I have been looking ever since, Portland is a tough market for rental, it is mainly an appreciation play. For most properties available on retail market, you will be lucky to get break even. The 1% rule does not really apply here, it is doable but 99.9% are from off market deals and it is still tough. 

    Let me know if you want to chat more on buying rental, I live close by.

    All the best.


    0Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    8y
    Solid local advice from Steve B. and Say Teoh . Does Portland meet the “1% rule” with listed properties? Not typically. But this sport is about financing. There are far too many strategies to make money in real estate to simply stick to the maxim of 1%. I’m not chiming in to say that this is a good deal, but for the guy that says you are at risk of things like a tire recycling plant going in down the road from Orenco station is missing the mark. Buying under valued properties with upside or expandability is a great strategy in our market.
    2Reply
  • Kundan Chand
    OP
    97006 · Member since 2018 · 23 posts · 3 votes
    8y

    Thanks all.

    @Steve V. - i haven't initiated an offer on Orenco station property yet, but i could offer 10% lower than asking price ($290K) and close the deal for $265k if owner agrees. one thing which worries me is the $400 HOA on this property though it includes swimming pool, gym, etc.. This makes me think to buy other property for $280K with $150 HOA (no amenities).

    0Reply
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