San Diego Multi Family - Investing in neg cashflow property?!

4 Replies

For those who have invested in a market where home values exceed your rental income at the typical 20-35% down.. 

How do you analyze it? Whats your rationale?

I'm looking at a duplex where I would live in one unit and rent out the other. My monthly payment would be cheaper then anything I would rent in the area but it is still a negative cashflow property if I rented out both units. This will be a long term hold for me and eventually rents will catch up to my payment and turn positive. I also think there is opportunity to raise the rents if I put a bit of money into it. 

Are you staying away from any/all properties with neg cashflow? Or are you still buying and why? 

@Schuyler G. I house hack a duplex in a pretty decent area and you pointed out a lot of positives already. Raising rents every year you'll start to break even and even cashflow after a few years or so while your paying down debt and see value appreciation.

These type of properties have a few things going for them especially in CA

1. The current rents are usually below market, and with the statewide rent control that brings predictable increases for at least x years

2. The units are usually not updated so if you do get a vacancy and are willing to put in 10k of granite, and cabinets you can usually raise rent by a lot.

3. Rents have been steadily rising in CA for a while and because there are less investors here demand > supply

4. Prop 13 at least for the moment keeps property taxes in line with your purchase price not the market value of the home which most other states don't do.

5. Least importantly in my opinion is price appreciation historically CA has appreciated a bit faster than other parts of the country, but that is not guaranteed.

Originally posted by @Schuyler G. :

For those who have invested in a market where home values exceed your rental income at the typical 20-35% down.. 

How do you analyze it? Whats your rationale?

I'm looking at a duplex where I would live in one unit and rent out the other. My monthly payment would be cheaper then anything I would rent in the area but it is still a negative cashflow property if I rented out both units. This will be a long term hold for me and eventually rents will catch up to my payment and turn positive. I also think there is opportunity to raise the rents if I put a bit of money into it. 

Are you staying away from any/all properties with neg cashflow? Or are you still buying and why? 

Schuyler, as my CA colleagues above have eloquently pointed out, a negative-cashflow househack is not a bad thing in CA. It's about the only way to househack here!

I'm househacking a duplex in a great neighborhood in Los Angeles. It's cashflow negative while I live here, but I'm paying much less to live in my 3-bed/3-bath unit than it would it cost to own or rent a comparable home, I'm getting principal paydown every month, and I'm benefit from the appreciation on a large asset.

As I see it, your goal should be to buy a duplex that will cashflow when you move out. Find a duplex with a unit that needs work. Move into that unit and fix it up on your own schedule. In a year or two, move out and rent the newly renovated unit at top dollar. If you're ambitious enough, refinance and repeat!

All the best,

Jon
 

@Schuyler G.

IMO, negative cash flow is fine as long as it's not for too long. SD is the long term play and through appreciation you'll experience large equity boosts over time. Compounding interest on an already highly priced asset.

And rents will catch up. Rent increases follow appreciating real estate.

I foresee SD continuing to go up for the foreseeable future for many reasons. Happy to discuss. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you