Negative cashflow on Rental Property .

260 Replies

Hey @Vinh Huynh in my opinion, I think if you do decide to keep this house, you have to offset your expenses some other way.  You may want to manage the property yourself to save that extra 10%.  You can also look into purchase a multi family and live in one side while you rent out the other unit.  Either purchase another unit that positive cash flows, or decrease your current cost of living to offset that $300 loss.  

@Vinh Huynh

My input probably won't mean much, as I'm not a vet like a lot of you guys. I just started buying property about 2 years ago. But I'd still like to put in my 2 cents because I want to learn and receive feedback for investors on the "appreciation" side of the fence. Im going to sum things up to keep it simple! So, you purchased a $500k rental and have negative cash flow.

For the money you spent here, you could have purchased 10 cash flowing rentals in certain markets. At 3% appreciation, in 30 years you can sell out for about $950k. Right? And without capex, vacancies, etc. You lost about $100k in negative cash flow. Now back to the small portfolio of 10 properties. Let's assume 0 appreciation takes place over the course of 30 years. I could sell for $500k. Now, I cash flowed $30k a year off of these properties. That's $900k added onto the $500k, assuming I never spent any of the cash flow. Also, I know we aren't looking at CapEx, Vacancy, Etc.

We would be closer to $40k+ year in cash flow but I just took it down to $30k for a better example. $1.4M vs $850k. And I didn't count any miscellaneous expenses for you. One month vacancy per every 12 months would set you back $70k+over the course of the loan.

I don't see why people invest in negative cash flow properties, but I would love for someone to explain it to me! I'm here to learn.

Originally posted by @John Hickey :
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:

@Bill Brandt  

Here's an example comparison over the first 5 years:

A) $400k property; 20% DP; $2400/yr negative cash flow, 15% avg Apprec/yr-

1 - Appreciated value = $805k
2 - Appreciated return = $405k
3 - Total cash flow = -$12,000
4 - Down Payment = $80k
5 - Accumulated negative = $92,000
6 - Accumulated Positive = $405,000
7 - Net Gain = $313,000

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr -

1 - Appreciated value = $146
2 - Appreciated return = $46k
3 - Total cash flow = -$36,000
4 - Down Payment = $20k
5 - Accumulated negative = $20,000
6 - Accumulated Positive = $82,000
7 - Net Gain = $62,000

Now, before you can say:

1 - You can raise rents...so can I
2 - As I raise the rents, I will reach positive CF...except taxes and insurance also are going up. A negative CF property quite often is like stairs going down hill. No matter how many steps you add, the hill keeps going down too.

...and, the big one.

I have $7200/year I can invest into another CF property. If I get a total of $36,000 in CF over that 5 year period, I can invest it in at least 1 more of the same property...and in year 6 I can buy a 3rd. That means while you have one property gaining in equity, and most likely still negative in cash flow, I have 3 properties...all gaining in cash flow...AND equity.

Another issue is starting point...as in "how much money are we starting with"?  Assuming the comparison is based on the same person, the same starting point for both options, that being $80k in cash, the B) option allows for the purchase of 4 of the same properties.

So the revised B), using the same $80k starting point, is as follows:

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr - x 4

1 - Appreciated value = $146 x 4 = $584k
2 - Appreciated gain = $46k x 4 = $184k
3 - Total cash flow = -$36,000 x 4 = $144k
4 - Down Payment = $20k  x 4 = $80k
5 - Accumulated negative = $20,000 x 4 = $80k
6 - Accumulated Positive = $82,000 x 4 = $328k
7 - Net Gain = $62,000  x 4 = $248k

I have $36,000/year I can invest into another 4 CF properties. If I get a total of $144,000 in CF over that 5 year period, I can invest it in at least 4 more of the same property...and in year 6 I can buy a 3rd set of 4. That means while you would have one property gaining in equity, and most likely still negative in cash flow, I have 12 properties...all gaining in cash flow...AND equity.

The more you talk the more it reminds me of that peanut route.  

Your saying this guy should sell his one investment property in a great market to take a haircut on fees, closing etc.  

Then he should start building a portfolio of smaller, cheaper cash flowing properties most likely far from his house....12 of them! 

How many flights to the Midwest, days away from family is that?

How many LLCs should he open.....he'll be on a first name basis with his lawyer. Accountant will need him to send all kinds of signatures....be filing taxes in new state. Register his LLC with the state Dept of that state depending on where.

 His taxes will be a phone book. Maybe he can use old returns in his fax/copy/scanner.   The amount of paperwork he’ll be signing  a year he’ll need plenty of scrap. 

Better buy a good scanner printer. You’ll be printing and signing a ton   

Not too mention maintenance and expenses.  Most markets Maintenace expenses are 50%.  Probably not so after a few years in Cali   

 In 25 years he’ll replace 36 hot water heaters instead of 3. 

12-24 roofs, countless fridges, stoves, toilets  

No doubt he’ll need a managing agent. Have to watch them. 

Commercial mortgages hello. 

Commercial insurance as well.  

Sounds like a job. 

The guy wants an investment property, he’s got a job.   

 Can you spell P...r...o...p...e...r...t...y  m...a...n...a...g...e...r...?

 Yes, I mentioned he’ll need a managing agent.  

 I don’t see a response to the post, do you have one? the spelling thing is cute.  I’d rather read a real response.  

 The number of properties is a comparison of value using the same starting point but different directions.

You're correct when you mention the number of properties potentially being an issue, but the PM can take care of that...and eliminate the need for constant travel.

In addition, a "boots on the ground" partner will do the same. The reduction in cash flow to this REI would substitute for the cost of the PM, but the Partner would have a vested interest in the property.

I mentioned that I never hold a property longer than 5-7 years due to the CAPEX issues you mentioned.

5-7 years? That’s a very short window.  Get him hammered on realtor,lawyer, title fees. Taxes on the gain. All kinds of stuff I  love to avoid.  

I would invest along side him. Keep the cash flow. Keep it simple. He is thinking long term. Retirement.  The way I see it his strategy has way more tax advantages with a lot less headaches.  

I’d bet unless Rancho Cucamonga cracks off into the sea with the rest of Cali  his investment would beat your 7 in ten years.  

Checking back here down the road.  

 Tax advisors take care of the tax issues.  1031 exchanges work well here.

5-7 years, if property bought correctly (right micro-market), isn't an issue.

I work as a Realtor and property manager in San Diego. It's hard to make any SFR cash flow without putting down 30% or more. I do agree that in the long run 10-15 years you'll see some appreciation and rent raises but at your age tying yourself to that large of a mortgage in a Southern California market that is at a 11+ year appreciation high is risky. I don't think we're going to see a major crash but inventory is going to pick up and I think more options will present themselves with better cash flow/ROI

I did not read all 9 pages...sorry.

Right now you have $2200 coming your way every month to purchase a piece of property. Many people will focus on that number however, another way to look at it is...

You are spending $300 a month to purchase a $500,000 piece of property.

It's up to you to decide if that is good enough or not. Plenty of ways to make money in RE and different strokes for different folks.

If it were me? I expect cash flow for now. However, I would love to also make some long-term appreciation plays too. Obviously the best deals are the ones that do both!!!

Originally posted by @Joe Villeneuve :
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:i

@Bill Brandt  

Here's an example comparison over the first 5 years:

A) $400k property; 20% DP; $2400/yr negative cash flow, 15% avg Apprec/yr-

1 - Appreciated value = $805k
2 - Appreciated return = $405k
3 - Total cash flow = -$12,000
4 - Down Payment = $80k
5 - Accumulated negative = $92,000
6 - Accumulated Positive = $405,000
7 - Net Gain = $313,000

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr -

1 - Appreciated value = $146
2 - Appreciated return = $46k
3 - Total cash flow = -$36,000
4 - Down Payment = $20k
5 - Accumulated negative = $20,000
6 - Accumulated Positive = $82,000
7 - Net Gain = $62,000

Now, before you can say:

1 - You can raise rents...so can I
2 - As I raise the rents, I will reach positive CF...except taxes and insurance also are going up. A negative CF property quite often is like stairs going down hill. No matter how many steps you add, the hill keeps going down too.

...and, the big one.

I have $7200/year I can invest into another CF property. If I get a total of $36,000 in CF over that 5 year period, I can invest it in at least 1 more of the same property...and in year 6 I can buy a 3rd. That means while you have one property gaining in equity, and most likely still negative in cash flow, I have 3 properties...all gaining in cash flow...AND equity.

Another issue is starting point...as in "how much money are we starting with"?  Assuming the comparison is based on the same person, the same starting point for both options, that being $80k in cash, the B) option allows for the purchase of 4 of the same properties.

So the revised B), using the same $80k starting point, is as follows:

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr - x 4

1 - Appreciated value = $146 x 4 = $584k
2 - Appreciated gain = $46k x 4 = $184k
3 - Total cash flow = -$36,000 x 4 = $144k
4 - Down Payment = $20k  x 4 = $80k
5 - Accumulated negative = $20,000 x 4 = $80k
6 - Accumulated Positive = $82,000 x 4 = $328k
7 - Net Gain = $62,000  x 4 = $248k

I have $36,000/year I can invest into another 4 CF properties. If I get a total of $144,000 in CF over that 5 year period, I can invest it in at least 4 more of the same property...and in year 6 I can buy a 3rd set of 4. That means while you would have one property gaining in equity, and most likely still negative in cash flow, I have 12 properties...all gaining in cash flow...AND equity.

The more you talk the more it reminds me of that peanut route.  

Your saying this guy should sell his one investment property in a great market to take a haircut on fees, closing etc.  

Then he should start building a portfolio of smaller, cheaper cash flowing properties most likely far from his house....12 of them! 

How many flights to the Midwest, days away from family is that?

How many LLCs should he open.....he'll be on a first name basis with his lawyer. Accountant will need him to send all kinds of signatures....be filing taxes in new state. Register his LLC with the state Dept of that state depending on where.

 His taxes will be a phone book. Maybe he can use old returns in his fax/copy/scanner.   The amount of paperwork he’ll be signing  a year he’ll need plenty of scrap. 

Better buy a good scanner printer. You’ll be printing and signing a ton   

Not too mention maintenance and expenses.  Most markets Maintenace expenses are 50%.  Probably not so after a few years in Cali   

 In 25 years he’ll replace 36 hot water heaters instead of 3. 

12-24 roofs, countless fridges, stoves, toilets  

No doubt he’ll need a managing agent. Have to watch them. 

Commercial mortgages hello. 

Commercial insurance as well.  

Sounds like a job. 

The guy wants an investment property, he’s got a job.   

 Can you spell P...r...o...p...e...r...t...y  m...a...n...a...g...e...r...?

 Can you spell 13.8% national average PM fees after the ups and extras? Joking as come back, but it is actual. 

 That's the average. That's not the number for all PM's.  I've never paid more than 10%...and with volume 8%. What's the actual for the property in question?

 I hear ya Joe. I think in this situation and others perhaps, one advantage with sfrs like this is they are set up to self manage. A property manager for one simple house is commonly not used and it might be fairly simple to self manage several good hood homes in Rancho Cucamunga.

Originally posted by @Matt R. :
Originally posted by @Joe Villeneuve:
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:i

@Bill Brandt  

Here's an example comparison over the first 5 years:

A) $400k property; 20% DP; $2400/yr negative cash flow, 15% avg Apprec/yr-

1 - Appreciated value = $805k
2 - Appreciated return = $405k
3 - Total cash flow = -$12,000
4 - Down Payment = $80k
5 - Accumulated negative = $92,000
6 - Accumulated Positive = $405,000
7 - Net Gain = $313,000

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr -

1 - Appreciated value = $146
2 - Appreciated return = $46k
3 - Total cash flow = -$36,000
4 - Down Payment = $20k
5 - Accumulated negative = $20,000
6 - Accumulated Positive = $82,000
7 - Net Gain = $62,000

Now, before you can say:

1 - You can raise rents...so can I
2 - As I raise the rents, I will reach positive CF...except taxes and insurance also are going up. A negative CF property quite often is like stairs going down hill. No matter how many steps you add, the hill keeps going down too.

...and, the big one.

I have $7200/year I can invest into another CF property. If I get a total of $36,000 in CF over that 5 year period, I can invest it in at least 1 more of the same property...and in year 6 I can buy a 3rd. That means while you have one property gaining in equity, and most likely still negative in cash flow, I have 3 properties...all gaining in cash flow...AND equity.

Another issue is starting point...as in "how much money are we starting with"?  Assuming the comparison is based on the same person, the same starting point for both options, that being $80k in cash, the B) option allows for the purchase of 4 of the same properties.

So the revised B), using the same $80k starting point, is as follows:

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr - x 4

1 - Appreciated value = $146 x 4 = $584k
2 - Appreciated gain = $46k x 4 = $184k
3 - Total cash flow = -$36,000 x 4 = $144k
4 - Down Payment = $20k  x 4 = $80k
5 - Accumulated negative = $20,000 x 4 = $80k
6 - Accumulated Positive = $82,000 x 4 = $328k
7 - Net Gain = $62,000  x 4 = $248k

I have $36,000/year I can invest into another 4 CF properties. If I get a total of $144,000 in CF over that 5 year period, I can invest it in at least 4 more of the same property...and in year 6 I can buy a 3rd set of 4. That means while you would have one property gaining in equity, and most likely still negative in cash flow, I have 12 properties...all gaining in cash flow...AND equity.

The more you talk the more it reminds me of that peanut route.  

Your saying this guy should sell his one investment property in a great market to take a haircut on fees, closing etc.  

Then he should start building a portfolio of smaller, cheaper cash flowing properties most likely far from his house....12 of them! 

How many flights to the Midwest, days away from family is that?

How many LLCs should he open.....he'll be on a first name basis with his lawyer. Accountant will need him to send all kinds of signatures....be filing taxes in new state. Register his LLC with the state Dept of that state depending on where.

 His taxes will be a phone book. Maybe he can use old returns in his fax/copy/scanner.   The amount of paperwork he’ll be signing  a year he’ll need plenty of scrap. 

Better buy a good scanner printer. You’ll be printing and signing a ton   

Not too mention maintenance and expenses.  Most markets Maintenace expenses are 50%.  Probably not so after a few years in Cali   

 In 25 years he’ll replace 36 hot water heaters instead of 3. 

12-24 roofs, countless fridges, stoves, toilets  

No doubt he’ll need a managing agent. Have to watch them. 

Commercial mortgages hello. 

Commercial insurance as well.  

Sounds like a job. 

The guy wants an investment property, he’s got a job.   

 Can you spell P...r...o...p...e...r...t...y  m...a...n...a...g...e...r...?

 Can you spell 13.8% national average PM fees after the ups and extras? Joking as come back, but it is actual. 

 That's the average. That's not the number for all PM's.  I've never paid more than 10%...and with volume 8%. What's the actual for the property in question?

 I hear ya Joe. I think in this situation and others perhaps, one advantage with sfrs like this is they are set up to self manage. A property manager for one simple house is commonly not used and it might be fairly simple to self manage several good hood homes in Rancho Cucamunga.

 Yep...and in the end it all comes down to how each property fits within a large plan and system.  If the "property" doesn't fit, you must...not buy it in the first place.

This post has been removed.

Originally posted by @Joe Villeneuve :
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:i

@Bill Brandt  

Here's an example comparison over the first 5 years:

A) $400k property; 20% DP; $2400/yr negative cash flow, 15% avg Apprec/yr-

1 - Appreciated value = $805k
2 - Appreciated return = $405k
3 - Total cash flow = -$12,000
4 - Down Payment = $80k
5 - Accumulated negative = $92,000
6 - Accumulated Positive = $405,000
7 - Net Gain = $313,000

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr -

1 - Appreciated value = $146
2 - Appreciated return = $46k
3 - Total cash flow = -$36,000
4 - Down Payment = $20k
5 - Accumulated negative = $20,000
6 - Accumulated Positive = $82,000
7 - Net Gain = $62,000

Now, before you can say:

1 - You can raise rents...so can I
2 - As I raise the rents, I will reach positive CF...except taxes and insurance also are going up. A negative CF property quite often is like stairs going down hill. No matter how many steps you add, the hill keeps going down too.

...and, the big one.

I have $7200/year I can invest into another CF property. If I get a total of $36,000 in CF over that 5 year period, I can invest it in at least 1 more of the same property...and in year 6 I can buy a 3rd. That means while you have one property gaining in equity, and most likely still negative in cash flow, I have 3 properties...all gaining in cash flow...AND equity.

Another issue is starting point...as in "how much money are we starting with"?  Assuming the comparison is based on the same person, the same starting point for both options, that being $80k in cash, the B) option allows for the purchase of 4 of the same properties.

So the revised B), using the same $80k starting point, is as follows:

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr - x 4

1 - Appreciated value = $146 x 4 = $584k
2 - Appreciated gain = $46k x 4 = $184k
3 - Total cash flow = -$36,000 x 4 = $144k
4 - Down Payment = $20k  x 4 = $80k
5 - Accumulated negative = $20,000 x 4 = $80k
6 - Accumulated Positive = $82,000 x 4 = $328k
7 - Net Gain = $62,000  x 4 = $248k

I have $36,000/year I can invest into another 4 CF properties. If I get a total of $144,000 in CF over that 5 year period, I can invest it in at least 4 more of the same property...and in year 6 I can buy a 3rd set of 4. That means while you would have one property gaining in equity, and most likely still negative in cash flow, I have 12 properties...all gaining in cash flow...AND equity.

The more you talk the more it reminds me of that peanut route.  

Your saying this guy should sell his one investment property in a great market to take a haircut on fees, closing etc.  

Then he should start building a portfolio of smaller, cheaper cash flowing properties most likely far from his house....12 of them! 

How many flights to the Midwest, days away from family is that?

How many LLCs should he open.....he'll be on a first name basis with his lawyer. Accountant will need him to send all kinds of signatures....be filing taxes in new state. Register his LLC with the state Dept of that state depending on where.

 His taxes will be a phone book. Maybe he can use old returns in his fax/copy/scanner.   The amount of paperwork he’ll be signing  a year he’ll need plenty of scrap. 

Better buy a good scanner printer. You’ll be printing and signing a ton   

Not too mention maintenance and expenses.  Most markets Maintenace expenses are 50%.  Probably not so after a few years in Cali   

 In 25 years he’ll replace 36 hot water heaters instead of 3. 

12-24 roofs, countless fridges, stoves, toilets  

No doubt he’ll need a managing agent. Have to watch them. 

Commercial mortgages hello. 

Commercial insurance as well.  

Sounds like a job. 

The guy wants an investment property, he’s got a job.   

 Can you spell P...r...o...p...e...r...t...y  m...a...n...a...g...e...r...?

 Can you spell 13.8% national average PM fees after the ups and extras? Joking as come back, but it is actual. 

 That's the average. That's not the number for all PM's.  I've never paid more than 10%...and with volume 8%. What's the actual for the property in question?

 I hear ya Joe. I think in this situation and others perhaps, one advantage with sfrs like this is they are set up to self manage. A property manager for one simple house is commonly not used and it might be fairly simple to self manage several good hood homes in Rancho Cucamunga.

 Yep...and in the end it all comes down to how each property fits within a large plan and system.  If the "property" doesn't fit, you must...not buy it in the first place.

 I agree. Years ago I was renting a house in LA and my landlord self managed a dozen of these same type homes from Park Ave in NYC. It really did not seem like much work for her either. Stuff can happen still and my one maintenance call to her the whole time renting was one pool pump. 

Originally posted by @Matt R. :
Originally posted by @Joe Villeneuve:
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @Matt R.:
Originally posted by @Joe Villeneuve:
Originally posted by @John Hickey:
Originally posted by @Joe Villeneuve:i

@Bill Brandt  

Here's an example comparison over the first 5 years:

A) $400k property; 20% DP; $2400/yr negative cash flow, 15% avg Apprec/yr-

1 - Appreciated value = $805k
2 - Appreciated return = $405k
3 - Total cash flow = -$12,000
4 - Down Payment = $80k
5 - Accumulated negative = $92,000
6 - Accumulated Positive = $405,000
7 - Net Gain = $313,000

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr -

1 - Appreciated value = $146
2 - Appreciated return = $46k
3 - Total cash flow = -$36,000
4 - Down Payment = $20k
5 - Accumulated negative = $20,000
6 - Accumulated Positive = $82,000
7 - Net Gain = $62,000

Now, before you can say:

1 - You can raise rents...so can I
2 - As I raise the rents, I will reach positive CF...except taxes and insurance also are going up. A negative CF property quite often is like stairs going down hill. No matter how many steps you add, the hill keeps going down too.

...and, the big one.

I have $7200/year I can invest into another CF property. If I get a total of $36,000 in CF over that 5 year period, I can invest it in at least 1 more of the same property...and in year 6 I can buy a 3rd. That means while you have one property gaining in equity, and most likely still negative in cash flow, I have 3 properties...all gaining in cash flow...AND equity.

Another issue is starting point...as in "how much money are we starting with"?  Assuming the comparison is based on the same person, the same starting point for both options, that being $80k in cash, the B) option allows for the purchase of 4 of the same properties.

So the revised B), using the same $80k starting point, is as follows:

B) $100k property; 20% down; $7,200/yr positive CF, 10% avg Apprec/yr - x 4

1 - Appreciated value = $146 x 4 = $584k
2 - Appreciated gain = $46k x 4 = $184k
3 - Total cash flow = -$36,000 x 4 = $144k
4 - Down Payment = $20k  x 4 = $80k
5 - Accumulated negative = $20,000 x 4 = $80k
6 - Accumulated Positive = $82,000 x 4 = $328k
7 - Net Gain = $62,000  x 4 = $248k

I have $36,000/year I can invest into another 4 CF properties. If I get a total of $144,000 in CF over that 5 year period, I can invest it in at least 4 more of the same property...and in year 6 I can buy a 3rd set of 4. That means while you would have one property gaining in equity, and most likely still negative in cash flow, I have 12 properties...all gaining in cash flow...AND equity.

The more you talk the more it reminds me of that peanut route.  

Your saying this guy should sell his one investment property in a great market to take a haircut on fees, closing etc.  

Then he should start building a portfolio of smaller, cheaper cash flowing properties most likely far from his house....12 of them! 

How many flights to the Midwest, days away from family is that?

How many LLCs should he open.....he'll be on a first name basis with his lawyer. Accountant will need him to send all kinds of signatures....be filing taxes in new state. Register his LLC with the state Dept of that state depending on where.

 His taxes will be a phone book. Maybe he can use old returns in his fax/copy/scanner.   The amount of paperwork he’ll be signing  a year he’ll need plenty of scrap. 

Better buy a good scanner printer. You’ll be printing and signing a ton   

Not too mention maintenance and expenses.  Most markets Maintenace expenses are 50%.  Probably not so after a few years in Cali   

 In 25 years he’ll replace 36 hot water heaters instead of 3. 

12-24 roofs, countless fridges, stoves, toilets  

No doubt he’ll need a managing agent. Have to watch them. 

Commercial mortgages hello. 

Commercial insurance as well.  

Sounds like a job. 

The guy wants an investment property, he’s got a job.   

 Can you spell P...r...o...p...e...r...t...y  m...a...n...a...g...e...r...?

 Can you spell 13.8% national average PM fees after the ups and extras? Joking as come back, but it is actual. 

 That's the average. That's not the number for all PM's.  I've never paid more than 10%...and with volume 8%. What's the actual for the property in question?

 I hear ya Joe. I think in this situation and others perhaps, one advantage with sfrs like this is they are set up to self manage. A property manager for one simple house is commonly not used and it might be fairly simple to self manage several good hood homes in Rancho Cucamunga.

 Yep...and in the end it all comes down to how each property fits within a large plan and system.  If the "property" doesn't fit, you must...not buy it in the first place.

 I agree. Years ago I was renting a house in LA and my landlord self managed a dozen of these same type homes from Park Ave in NYC. It really did not seem like much work for her either. Stuff can happen still and my one maintenance call to her the whole time renting was one pool pump. 

Understanding that just because you can do it all, doesn't mean you should, is something that is missed...and ends up being very costly to many REI. That "team and partner" group is what makes you money...not costs you money.

Vinh, buying anything in CA as a rental right now is probably not going to be your best decision as far as cash flow goes. Appreciation isn't a good idea either when the market is this high. You should sell that property. 500k out of state can get you into 10-15 units renting for 7-8k/mo gross, if you select the right out of state market and the properties are operated well.

@Joe Villeneuve

I was at an event and on my phone - Would like to close the books on this...

The original post was:

"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"

-$300 Monthly Net Operating Loss / $2,500 Operating Expenses = 12%

That mean's, keeping all things constant, over 30 years you would have had 88% of an asset paid for you by someone else assuming no appreciation or tax benefit - Simply just the amount of cash towards an assessed value at a date in time.

That is not a bad investment - You used monetary leverage to then leverage someone else's time and income to pay for an asset in your portfolio. Again, I understand that some folks on here are looking for additional income streams to reduce their dependency on a job, etc... but the point remains that just because something does not cash flow does not mean that it is a bad investment. it just depends on your goals... 

Also, you can increase revenue or rent by using a short term rental model which will change the negative cash flow dilemma. As an example - If OP is already collecting $2,200 in gross rents on an annual basis, it would be highly unlikely that using the STR model would not be able to earn them positive cash flow. Also, expenses such as utilities could be shifted to the tenant or there could be other potential value adds such as an added storage space that could produce income on the property.

Yes, obviously assets that cash flow is ideal and will provide its owner with more options but positive cash flow or bust is not always possible for people starting out or in every market and does not take into account that the person owning will most likely be much better off having owned it and participated in the first place.

Good luck @Vinh Huynh 

Originally posted by @Cody Z. :
@Joe Villeneuve

I was at an event and on my phone - Would like to close the books on this...

The original post was:

"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"

-$300 Monthly Net Operating Loss / $2,500 Operating Expenses = 12%

That mean's, keeping all things constant, over 30 years you would have had 88% of an asset paid for you by someone else assuming no appreciation or tax benefit - Simply just the amount of cash towards an assessed value at a date in time.

That is not a bad investment - You used monetary leverage to then leverage someone else's time and income to pay for an asset in your portfolio. Again, I understand that some folks on here are looking for additional income streams to reduce their dependency on a job, etc... but the point remains that just because something does not cash flow does not mean that it is a bad investment. it just depends on your goals... 

Also, you can increase revenue or rent by using a short term rental model which will change the negative cash flow dilemma. As an example - If OP is already collecting $2,200 in gross rents on an annual basis, it would be highly unlikely that using the STR model would not be able to earn them positive cash flow. Also, expenses such as utilities could be shifted to the tenant or there could be other potential value adds such as an added storage space that could produce income on the property.

Yes, obviously assets that cash flow is ideal and will provide its owner with more options but positive cash flow or bust is not always possible for people starting out or in every market and does not take into account that the person owning will most likely be much better off having owned it and participated in the first place.

Good luck @Vinh Huynh 

 88% isn't 100%

Originally posted by @Joe Villeneuve :
Originally posted by @Cody Z.:
@Joe Villeneuve

I was at an event and on my phone - Would like to close the books on this...

The original post was:

"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"

-$300 Monthly Net Operating Loss / $2,500 Operating Expenses = 12%

That mean's, keeping all things constant, over 30 years you would have had 88% of an asset paid for you by someone else assuming no appreciation or tax benefit - Simply just the amount of cash towards an assessed value at a date in time.

That is not a bad investment - You used monetary leverage to then leverage someone else's time and income to pay for an asset in your portfolio. Again, I understand that some folks on here are looking for additional income streams to reduce their dependency on a job, etc... but the point remains that just because something does not cash flow does not mean that it is a bad investment. it just depends on your goals... 

Also, you can increase revenue or rent by using a short term rental model which will change the negative cash flow dilemma. As an example - If OP is already collecting $2,200 in gross rents on an annual basis, it would be highly unlikely that using the STR model would not be able to earn them positive cash flow. Also, expenses such as utilities could be shifted to the tenant or there could be other potential value adds such as an added storage space that could produce income on the property.

Yes, obviously assets that cash flow is ideal and will provide its owner with more options but positive cash flow or bust is not always possible for people starting out or in every market and does not take into account that the person owning will most likely be much better off having owned it and participated in the first place.

Good luck @Vinh Huynh 

 88% isn't 100%

Joe - That comment added nothing. You can think what you want but the best case scenario does not define an entire concept.

@Vinh Huynh  Do you have any space that is going under utilized? My wife and I purchased our first house hack property recently and it had two storage sheds that came with the property. We rented each one out for $80 a piece / month. We just put an automatic lock on it so we never have to worry. It's a great way to incrementally increase your monthly income from properties.

@Cody Z. Hi Cody , thank you for your idea. Yes, if we take it easy and simplify my story, I think your idea is correct. Let's say after 30 years someone paid 88% of my property even with no appreciation is not really bad at all. At that time, I still gain profit and collect rent for the rest of my life. Just like stock , we can categorize investors in some different types : Aggressive, Moderate or Low Risk. Everybody knows that high risk , high reward. Thinking is going out of state to invest into Positive Cash Flow market is not bad idea but I don't want to invest into what I am not sure or I don't know. I think I will keep it for at least 10 years. Let's see. 

We had an SFR in Fontana (just up the road from you) and had the same issue. We were working with about the same numbers and just could not get it to work. If we raised the rent (even by a small amount - $50-75), the tenant would move out. If we let them move out and tried to re-lease the property, the rent rates were actually lower than they had been with the previous tenant.

That is a very difficult area to rent in, as their are some decent houses, but the purchase prices are high and the rental prices are low.

It took us several years to build up enough equity in the property to be able to sell it at an acceptable amount.  Over the period of owning the property, we lost about $80K.  Bitter pill to swallow, but we thank God we're out of there now and focused on other areas that actually cash flow.

Good luck with whatever you end up doing.  Would love to hear the outcome.

@Vinh Huynh I'm sure someone probably already suggested in the last 200+ posts..., but jic, if the area has a college nearby, you could rent individual rooms to students to up your income, short term rentals to traveling nurses, physical therapists, or Air B&B if its allowed. 

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