I know that in some instances it makes sense to take on a rental property that operates with a small negative cash flow. One reason I can think of is expected appreciation. Are there any other reasons that would help make the arguement for operating on a negative cash flow?
Second question…would it be better to put down a larger down payment in order to operate on a positive cash flow? For example, the property I’m looking at could operate on positive cash flow if I put 20% down, but would be negative cash flow with only 10% down. Any thoughts on the subject, advice, recommendations would be very much appreciated.
Thanks for the help, let me know if you need any more specific information.
Where are you located, or where are you looking at investing at?
I’m in florida. I’ve found a property in a nice desirable area that has grown and will continue to grow in value. I think the price is right for the area and I think the property will definitely appreciate over the next 3-5 years. That said, I may have to operate on a neg cash flow unless I either put 20% down (which I would rather not do) or raise the rents considerably.
I would think banking on appreciation is a bad idea, but thats just me. Also, if you aren’t making money on the property monthly, without a huge DP, then I would walk. If you put that large sum down, then you are tying up your cash and tying your hands with regards to other deals. Just my humble opinion.
I would put down enough money to make it cash flow positively. If you look at the return on capital employed it beats where your money is anyway. If you are waiting for appreciation then you are buying retail and trying to sell at retail. That is speculating and if that is what you want to do, then I don’t understand you business model and won’t comment on how to do it successfully. My model would be to make your own appreciation by finding a property that is selling at a discount because of one of the “4Ds” (death, disease, divorce or disrepair) fix up the place so that I could sell it at current market process. That is investing. The property has to be distressed or I don’t buy it.
The beauty of positive sach flow is that you get positive cash flow, and you get the appreation also!
ive talked to someone that had a negative cash flow on a house, but he didnt mind, bc it was worth 50k more than what he paid for it
I had a possitive cash flow of 150 per month but decided to do some improving on the place such as new siding and under layment also took a old rotting tree down and put land scaping in, put me in the negitive 4100 but I am now getting 5000 back on my taxes for claiming a loss on the property. apple to apples…Ill take the profit anywhere I can, also by improving the property, I increase the value. Some times it does not pay to make a profit if you are going to give it back come tax time. I also plan on keeping the property for a long time. Just my thought from Michigan.