I just bought my first house (not investment) and I will be looking to get my first investment property in 6 months or so. I’m in Tampa and a nice 3/2 would go for $1200 - $1400 a month.
However, I would have a negative cash flow, the sales prices are around $180K - $200K
I would be trying to get 100% finance. So already I would have a negative cash flow, is this a bad idea when first starting out?
Why would you buy a home with a negative cash flow? Appreciation potential? What if it does not appreciate or appreciate much?
If the property is negative with 100%, put money down to make it positive or move along.
Those home prices are cheap and rent is pretty good. If you could put money down, it could work. But like you said, you need 100%.
If you can buy a real good deal, perhaps a LO will be the ticket there. You have to run all the numbers to see.
Don’t buy just to own something unless you are living in it.
Yes it would be for appreciation potential. Homes are going up around 10% a year here. I might be able to look around and find a good deal, maybe $140K.
I thought about a HELOC, but then I would be in the same boat.
Yea I figured as much. You would have to ask yourself, why are they going up? Is there something new going on or is it just buying frenzy?
Buying based solely on appreciation is SPECULATION. However, I believe that a person should have some part of their profits in speculation. For example, 10%.
If your earnings were 100k per year, you would then put 10k into speculation.
How I see it:
If the property is going to potentially lose $2,000 per year, the 2k is a speculation investment. Therefore, if you made 20k in net profit annually, this might be a good gamble. When you speculate, you are trying to hit a home run. You should never speculate with large amounts of cash though.
How much you speculate with, 1% or 20% or more, is your own personal call.
People who never speculate normally never experience earning great amounts of money.
People who over speculate normally never experience earning any significant amount of money.
Think of it like this.
You have 20k each year in profit. You could buy that 20k in a sock drawer or re-invest it and perhaps make a couple more k per year. What if you took just 2k off that. Would it affect your returns that much? No. So if you lost the 2k, it won’t kill you. However, you have a shot of that 2k returning many fold over.
Cite any wealthy person you wish, they most likely all speculated to some degree and normally they did not do it too much (expect possibly when they first got started or were up against a wall and luck happened).
You are probably in a good area. In most places, I would not even both with appreciation speculation. I mean, who cares when homes are sub 100k. I can buy a home right now with no money down, rent it out and lose $200 each month. Why would I think about it? Well, if I am right speculation wise for only the next 12 months, I will end up ahead $35,000+. If the market shook off the cold feel and heated up, that number would be larger. In the mid-west, I would not buy anything as speculation. The land is cheap and plentiful and appreciation in many places is non-existant or choppy at best. This is why I asked you what the reason for the appreciation was. If the reason is just inflation and people buying for whatever reason, I don’t like it.
Oh, on my example above, the $200 a month is only a fraction of my profits (very small fraction). It is my speculation cash. Forget the home value for a moment or possible profit. If I can hold that property for $200 a month, I can do that for an extremely long time, til it is paid off.
Important
We are talking about your first property though, so unless you have profits coming in from other markets, this would not be a good play. What if it does not rent or you mess something up (since it is your first time)? Because the property is not positive, you can get hurt even more.
Only you can decide though. Good Luck.
I’m not for the negative cash flow in any situation. Learn your markets, move further outside of Tampa and look some more. 8) Just my two cents.
Yea, I don’t know the Florida market but there is tons of places there. If you look at Vegas, as a whole, your next closest places (if you want to call them that) is about 1 hour away. They are small towns with not much going on. We are in a cereal bowl here 
Anywhere else and I would look around first and foremost.
I would speculate on a home, if it met my criteria, here, but then I know this place and I have a lot of options and connections here. I would only do it with one home though and it would be a small part of my earnings. Honestly, I can not think of one other place I would even try that. I am flying to Houston to check out some deals and look over some land. If the property (aside from raw land) is not going to be cash positive, it does not exist.
You can also try to get a deal and LO the home for a profit, with built in appreciation.
Listen to others though. I have more of a business mentality. When I started each of my companies, I did so with cash out of pocket. Each month I paid the bills until I turned a profit. If I said I did not want anything that had a negative cash flow, even if the upside potential was there, I would still be back where I was at 21, which was working for $15 an hour.
For me everything is in one big basket. Everything is working together. One day my stocks might not be running, but maybe my companies are doing well. Another day I might not have a new client, but my real estate is earning. Diversification is very important.
The trick is not just being diversified, but how you are diversified and how your money is working.
Aw, I am rambling again for no reason. Sorry.
Just about everyone on this forum will tell you not to do a negative cash flow property your first deal (most will say never). I agree here. I think your first deal should not be difficult. No rehabs or anything that can’t get you positive fast. If your first deal is negative, you could fall into a negative thinking trap and this will kill you. Better to make pennies on your first deal and be a positive thinker with energy.
I don’t have nearly the experience base as others here, evergreen in particular (i’ve read a lot of your posts evergreen and your advice is usually right on the money).
I have done plenty of research and am actually looking for my first ‘active’ investment property. I wouldn’t say I’m a novice, but I am fairly green. Up until now, my RE investments have been ‘passive’. I have basically bought houses each time I relocated with the intent of selling or renting after I moved. So basically my investments to date have been ‘opportunistic’. I viewed each property as an investment from the start, but as I was going to live there for at least 2 years, it still had to be someplace I would not mind living in.
The reason I am giving this background is since I have been looking for a property solely as an investment my criteria is much more stringent. It seems like your situation should be the same.
Specifically, investing opportunistically, or passively as I like to think of it, I would consider holding onto a property with slight negative cash flow realizing that I could raise the rents and be positive within a couple of years while I gain equity (note - i say equity, not appreciation). This would be if I already owned the house as my primary residence and I was moving, so I would basically be willing to accept neg. cash flow in this case if I would not be able to make any money selling (ie. I am not out anything except the carrying costs of the neg cash flow).
Now, finally to the point of my post - sorry for the slight ramble. In looking for a property solely as an investment I have been applying very stringent guidelines to my search - I am in no hurry, especially as this will be my first ‘active’ invesment. I would rather pass up 10 (or 50 or 100) good deals until I found the ‘right’ deal for me. I don’t see any reason to accept a negative return on your first invesment in order to hope for appreciation or potential income down the road. That to me is analagous to buying futures or stock options…while they can make you a lot of money, they should only be invested in with cash you can afford to lose. IMO, with my first ‘active’ investment I am looking to preserve the capital I already have, plus generate some income now, not 5 years from now.
Sorry for the ramble, I hope this helps…
Phil