Updated about 3 years ago on . Most recent reply
Need advice! Negative cash flowing property
Hello everyone!
I am trying to buy my first real estate investing property. I am under contract for a property at $389k, I will be using an FHA loan with 3.5% down payment. This is a 3 unit building with tenants on the top and basement floors, I would live in the middle unit. The building has not been updated for some time. The rents are currently below market value and would only cover $2400 of the potential $3370 mortgage. My intention is to house hack but I would have to cover the difference in the mortgage which is around $1100. My realtor is pushing that this is a good investment and the building is good, but I'm not sure it aligns with my financial goals. Should I invest in this property if there is no cash flow? I would have to renovate the bathroom in my unit, add AC units, new paint, and a stackable washer and dryer. The other two units need to be renovated, however the tenants are long-term and on month to month rental payments.
Any and all advice would be great! I am worried that there will be no cash flow on the property and I won't be able to save up for my second investment property. Is it smart to invest if there is no cash flow?
Thanks!
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- Real Estate Broker
- 3412 S. Harlem Avenue Riverside, IL 60546
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@Francheska Viejon I like the idea overall of house hacking in this scenario. I always tell clients of mine to run numbers without them living in the unit. You are effectively getting the benefit of the income that it would take to pay for rent, but this is not taxed so this "free rent" is very powerful.
The other thing to remember is that the FHA loan is almost never held for 30 years. Too many newer investors don't realize how powerful just refinancing out of that FHA loan can be in the future. Here in Chicago, a lot of investors have been able to ditch their FHA loan just due to natural appreciation and not due to them paying down the loan, etc.