Negative cashflow on Rental Property .

260 Replies

Originally posted by @Joe Villeneuve:
Originally posted by @Johann Jells:
Originally posted by @Vinh Huynh:

Hi BP, 

I've just bought a property in Rancho Cucamonga in California  and rent it out from last year. Since I live in Southern California, the price of real estate is kind of high. Therefore , although I've already put 25% for my down payment and the value of the house is about $500k , I've still got month negative cash flow. I rent it for $ 2,200 but my expense is around $2,500 ( included tax , property management fees, insurance and mortgage).  I would like to listen to your advise how to make cashflow break even or become positive. Thank you 

Don't listen to investors who have never seen rising prices and rents. In my area very little cashflows in the SFH or condo markets, but they sell like hotcakes to investors. IMO $300 is very little neg cashflow, and long term you are in a nice investment. At a 3% rent inflation you'll be at even cashflow at month 52.

I'm currently building a spreadsheet model of negative cashflow investing. But look at this simplistic example of neutral cashflow. A 25% down, 15 year mortgage will yield you 9.6% if nothing ever goes up. But you're in a high value area where rent and value do go up.

 We've all seen rents raise.  Negative cash flow investing isn't investing.

your quote:  "At a 3% rent inflation you'll be at even cashflow at month 52".

Why in the world would you want to wait over 4 years just to break even?

Don't listen to people who rationalize poor cash flow in their markets.

 Let me add this:

That's 4 plus years of perfect tenancy and no added costs (or worse, CAPEX). What are the odds of at least 2 months of vacancy, and/or at least a couple thousand dollars of rehab costs during that time period.

Also, as was stated above, you are counting on (during these 52 months) no increase in taxes and/or insurance.  What are the odds of that?

You can't base your investments on future events you have no control over, and expect that to turn a bad deal into a good one.  That isn't investing...that's speculating.

On top of that, any cash you have control of allows you to reinvest it...and reinvest those returns, and (repeat...) over and over again.  This compounding effect works both ways.  Positively, and negatively...as in lost opportunity.

Originally posted by @Bob Prisco :

@Steve K. well this is very surprising to me . Everyone I know that lives there , and I know many are getting out. San Fran, a **** hole, I could not believe what I saw. Santa Cruz, terrible. Orange county, homeless everywhere.  Super high taxes, housing prices are so over inflated, 2 mill for a " normal " ranch.  Oh well, , but the fact of the matter regarding THIS post, why buy a prop with negative cash flow if your looking for cash flow. If one does not care about cash flow, and is hopeful the price will increase, then great. But I believe the question was , how do I generate cash flow on this prop , well unless you can raise the rent to 3k + you cant. So IF this was purchased for cash flow it was a bad investment . 

Good luck 

 We might as well be talking about 2 different businesses in 2 different countries. Property investing in Cleveland is so different than the coasts. I don't tell you you're wasting your time and money chasing cashflow, but why is everyone so quick and certain to declare appreciation investment is insane? Hedge funds and other sophisticated investors are snapping up property in my city that you'd probably also call a sh*thole, they must know something you don't.

@Vinh Huynh did you invest in this for business or retirement? It sounds like you’re just justifying the negative CF. -$300 this is not even considering vacancy. One month you’re not rented is going to run you $2500 out of pocket. Ouch. And no income from the property to cover this cost.

Originally posted by @Eric Lau :

@Johann Jells this can not be real...

Eric, I'm afraid you're going to have to be more specific. If you're possibly talking about my 56x return, here's the numbers. I put down $62.5k on a $250k property in 97. An identical property with a teardown on it across the street sold several years ago for $3.5m. They built 8 condos that sold for ~$900k each.

Nothing wrong with negative cash flow if you can afford it & are in a high appreciation market. 


Don't listen to all these guys comparing the prime coastal markets to the midwest. Population numbers in Primary markets are very different when comparing to the midwest & most high cash flow markets. 

Here in NYC, condos that would def be cash flowing negative back in 2011-12 sold for $3-400k. Same ones now sell for $1.2-$1.5 now. Historically these prime markets have appreciated much more than the overall market. 

Betting on appreciation isn't gambling if done over the long term. Short term it is def gambling, unless you have a mark to market opportunity. Many people have created generational wealth in the high appreciation markets like NY & CA. 

Originally posted by @Johann Jells :
Originally posted by @Eric Lau:

@Johann Jells this can not be real...

Eric, I'm afraid you're going to have to be more specific. If you're possibly talking about my 56x return, here's the numbers. I put down $62.5k on a $250k property in 97. An identical property with a teardown on it across the street sold several years ago for $3.5m. They built 8 condos that sold for ~$900k each.

 just realized you're in JC.  Nice I believe the returns there now. As I've invested in a 3 bed  1200sqft coop in brooklyn for $375k and is now appraised at $450K in less than 5 years. 

Now i have to ask,  Did your initial investment on this property net you positive back in 97?

@Vinh Huynh I Agree with selling it and buying in a different market. I’d sell it and buy a Triplex or 4plex in Vegas metro area. Not too far from where you are at.

@Joe Villeneuve

I think he was just stating what the makeup was...

As far as your advice of selling it now I would suggest instead maybe the possibility of treating as a Short Term Rental to command higher rents.

Also, -250 a month to own an asset that will increase in value by inflation and be paid off primarily by someone else is still not a bad investment...

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@Johann Jells as I mentioned in my comment, IF he purchased this with the hopes of appreciation, then great !  If he is new ( which it  seems so )  and was trying to figure out how to turn this into positive cash flow  ( as he ASKED in his post ) then it was a mistake.  Also as  someone else mentioned, one month not rented is 2500, what if 3, 4 months bam 10k, gone ? What if the tenant stops paying, then months and months then repairs 10k 15k   easy poof gone or more. I do not know how fast evictions are out there. What if its like NY, 6 months, well now he is running into a real issue. Also  I was in noway comparing Clev, to Ca, as you mentioned its two completely different worlds, and strategies. 

All the best to you , 

@Eric Lau Thank you for your idea . I bought it for my retirement . Talking about no vacancy , I agree your opinion . Therefore , I try to minimize that by accepting 1 month deposit and try to get good and long term renters. They need to notify me ahead of time before they move out. Plus , this is very high demand for rental property . Some basic methods.

I think the math is just too complicated for many on here, there are models to use that aren't provided by BP. (Search for Internal Rate of Return on here for examples of what I mean.) REI is an entirely different animal in high appreciation areas. I agree with Johann Jells...stay the course.

I agree with @Joe Villeneuve . I have a negative cash flow property that is going on the market in a couple of weeks. It's unfortunate, but I can't keep losing money on it waiting on appreciation or rent increases. 

I was initially going to ride it out and make extra payments, but that would tie up money that I need to use on buying other properties. So I made the decision to just sell it and start fresh with notes and a new property that cash flows.

Originally posted by @Cody Z. :

@Joe Villeneuve

I think he was just stating what the makeup was...

As far as your advice of selling it now I would suggest instead maybe the possibility of treating as a Short Term Rental to command higher rents.

Also, -250 a month to own an asset that will increase in value by inflation and be paid off primarily by someone else is still not a bad investment...

 "As far as your advice of selling it now I would suggest instead maybe the possibility of treating as a Short Term Rental to command higher rents."

Do you want to elaborate on this one?

"Also, -250 a month to own an asset that will increase in value by inflation and be paid off primarily by someone else is still not a bad investment..."

An asset, is something positive.  When you are guessing/hoping for future events you have no control over, as the reason for holding something that is currently, and in the distant future, losing you money, is a BAD investment.

Originally posted by @Aninze A. :

I agree with @Joe Villeneuve. I have a negative cash flow property that is going on the market in a couple of weeks. It's unfortunate, but I can't keep losing money on it waiting on appreciation or rent increases. 

I was initially going to ride it out and make extra payments, but that would tie up money that I need to use on buying other properties. So I made the decision to just sell it and start fresh with notes and a new property that cash flows.

 Exactly...and, you haven't lost any money that way, because you are still "in the game"...by moving forward with what you can get out of this negative CF property.  When you do move forward, you can recover the negative cash flow from the previous property...and profit from the following same positive CF.

...and, be ahead of the game, instead of continuing to fall further and further behind...if you stayed with the NCF property.

Possible option is to drop the property management.  Yes it's a little more work but  it will get you closer to cash flow .

@Joe Villeneuve

RE: STR - That would be something like Air BnB or VRBO which would be a nightly rate and would allow the owner to command a higher rent over the month cumulatively. I've spoken with plenty of investors who swear by STR. That turns a non cash flowing property when leased annually into a positive cash flowing asset.

RE: An asset being “positive” - What you’re saying is misleading to new investors. Whether a property has positive cash flow or not does not define whether or not it is considered an asset, book definition or performance wise. For example, if I paid $3k annually (-$250/ month cash flow) and someone is paying ~$2.2k toward my principal, interest, taxes, etc then i am still making a profit. In addition, I’m picking up appreciation and the tax benefits.

BP members get lost in cash flow numbers and obviously it depends on the investors goals but saying it’s not an asset because of cash flow - especially when it’s rented for most of the monthly payment can be misleading to people starting out.

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@Vinh Huynh it is hard to get cash flow now in California. When you buy a invest property, you are looking for: cash flow( most investors), tenants pay your mortgage, and the value goes up!

I would say consider being a Long distance Landlord. Establish a relationship with a Management company in another area or State. Sell the money loser buy in another state. 

Sell it and buy something good.

@Terence Lee

Cashflow does not happen in primary markets. You have to look into secondary and tertiary markets... which means you have to get out of you comfort zone and go 1000 miles away.... or keep working the day job.

@Vinh Huynh

I don't know anything about the market in California. I have been using the BiggerPockets calculator and Rentometer to help me. I am closing on my first rental on May 31. I have a positive cash flow, above 10% NOI and will be able to pull out money on the refi. Used the calculator

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