Will Negative Cash Flow Be Okay Here?

[James Marsh]

Hello all, 

First time real estate investor and first post. My wife and I have been saving up and ready for our first rental property. I found a property (new build) that is in an up and coming area we really like and want to make an offer. The issue is whether to put down 20% or 25% down on a $270k property.

20% down will result in a negative cash flow of about $200 which it is not a problem for us. Our plan here is to refinance in 12-18 months when interest rates (hopefully) come down and allow the house to appreciate in value as the surrounding area gets built out.

The other option is to put 25% down and cash flow positively (barely) however I'd rather save the $13,000 difference for general cash reserves and other investment opportunities we have going on.

Does anyone have any advice here? Is this even a good deal worth going for? The entry to buying a home will just get harder and tougher as interest rates will start to drop and more buyers flood the market. Any advice/thoughts would be greatly appreciated!

[Bill B.]

Obviously everyone who says never is exaggerating or lying but you know that. Anyone who needs cash flow shouldn’t be investing in real estate. What if you had positive $100/mo cash flow and the ac unit went out costing $10k? Or just a $1700 fridge?  Well, there goes your cashflow, better not buy. 

Almost all your wealth will be built with appreciation. If you plan to own 50 or 100 properties so you can have $5-10k mo income? One $400k property at just 4% appreciation is $1,300/mo. Plus you can refi your cash out to own it for nothing. Cashflow doesn’t do that. My best performing properties were negative $500-$800/mo cashflow. Oh no, I had to kick in $6,000/yr towards loan pay down while it only appreciated $70k/yr. Even now while paid off. It only cash flows about $30k/yr. It still appreciates more than cash flow. 

You want cashflow? That’s all that matters? You can buy 100, or 200 Midwest sfrs for $50k that will meet the 2% rule. And you’ll lose your behind. But they’ll cashflow, until something major breaks. When you’re talking $1-200 positive or negative, it just doesn’t matter. If that would sink you, invest in something else.