Property Will Cash Flow... But Not Right Away

[Daniel Curtin]

Hey Everybody,

I'm Dan and I'm from Chicago. 

I've been looking to buy my first rental property for awhile. I've come across cash-flowing properties in the past, but I'd get cold feet. I'd do my homework, but I always felt like I could do more homework. I'd think, what if expenses are more than what I'm estimating? What if I can't get the rent I'm estimating? 

Anyways, my parents are selling their 4-unit, and I'm interested in buying it. I ran the numbers in different ways to account for different scenarios: cash flow with PMI and without; cash flow with appealed taxes and without; cash flow at current rent rates, and cash flow with raised rents (after cosmetic rehab). Initially, I won't cash flow, but I would within a few years maximum. Is it still a solid investment? I ask because it doesn't pass all the rules Bigger Pockets talks about, but it will soon down the line.

Thanks,

Dan

[Vaibhav Puranik]

I think the answer really depends upon lot of factors and mainly your tolerance level. I have had a condo that was negative $500 cashflow per month! But again I am in California and I had a solid income from my w2 job and the I knew the condo would appreciate really well. Exactly that's what happened. I sold that condo for $300k more than what I had bought for. Thus my IRR was approximately 17%.

You will have to ask these questions to you - Is the negative cashflow $50 or $500? Ultimately will the investment be profitable if you keep it for say 5 to 10 years? Do you have solid income stream to support the negative cashflow? Because it's easier to buy this property (as the seller is your parents), will your real estate journey begin finally? I would say, if this property makes you jump in real estate, then it might be worth it as you will learn a lot out of it. 

It's very important that you modify whatever Biggerpockets podcasts or members say based on your situation.