Could negative cash flow actually be justifiable some times?
I have an opportunity to grab another set of five rental properties. They are off-market. Seller financing is an option, but they want a 7 year term. They are offering that with a rate that is 1 point under the banks around our area. I really don't want to finance through a bank with these, if possible. I also love the idea of paying them off in 7 years.
I really would love to seller finance this. If I do this 7 year term, I will, at current rental rates (which are actually a bit low, but I'm always basing my analysis on current rental rates with the current tenants) negative cash flow around $50/month for the total 5 property package (1 duplex, 4 small SFH).
I have another 5 rental properties (11 units), that cash flow FANTASTICALLY. They kill the 1% rule and are over 2.5%. So they are doing great. Can I justify this other deal with that small negative cash flow? If I did a 30 year note on these same properties, I would cash flow about $1,100/month. The rent is, total between all properties, $2,150, and they are asking $150,000. That's almost 1.5% of the asking price.
I feel like doing this actually can make sense, as when I pay these off in 7 years (or less), I will have about $1,700 cash flow from these... assuming rents stay exactly where they are (which is very unlikely). Any help and advice is very much appreciated! Hopefully this is all clear.
Thank you in advance!