Should I negative cash flow for a bit ?

Question

Hey guys. So I’ve got a decision to make here on a property. It’s currently selling at a relatively competitive price , in fact it’s selling for under 100k below the Valued amount (last valued in this year February)

The issue right now is that it currently has a tenant who’s signed a lease agreement ending next year February. The current rental price on the lease is way about 600 below my break even point (after mortgage and expenses).

I’ve got a job and I’m wondering if I should move in on the property and bear the negative cash flow until the lease ends? And then I could change terms to fit my pricing. What do you think, good or bad idea ?

Joe Villeneuve · Answer

Why?  You're searching for a reason to do this, and as of yet, you haven't come up with any.

1 - Why are you going by a sold comp to this property from last Feb?  It doesn't apply.  What are the comps now for the same property?

2 - Why are you assuming you can get the rent raised when the current tenant leaves?  Why is the tenant paying what they're now paying in the first place?

3 - Are you saying you'll be eating a negative CF of 600/month...for 9 months?  That would be a total of almost 5k out of pocket that you would need to recover before you started making a profit...and positive CF.

4 - You're assuming you can change the terms to fit your needs when the lease ends.  You know this can be done...how/why?...and what if you can't?  You're basing your entire deal on future events (way in the future) that you have absolutely no control over...or guarantees that the situation you need at that time will ever take place.

Joe Villeneuve · Answer

My answer is still the same, because your responses haven't changed the situation.

Jese Mbuya Gombalume · Answer

Thanks for the comment. It’s a 2 bedroom apartment in an upmarket area usually going for 750k , at 500k it’s a steal. The way it is if I did a few minor additions to it such as fitting in air condition and furnishing it , it could move rentals to 300 above my expenses . The expenses I’ve been accounted for are Mortgage + Capex + Property insurance  .

Jaron Walling · Answer

@Jese Mbuya Gombalume That's not a bad strategy but it's completely dependent on the market. Have you researched the neighborhood and looked at other comparable rentals? You can't compare last year rates or prices to what you're looking to buy. What do the numbers tell you and what expenses are you accounting for? It's not impossible but a $600 swing seems like a stretch.

That's just my 2 cents.

Should I negative cash flow for a bit ?

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