Negative Cash Flow on Low Money Down

[Bryce Renicker]

Hello BP community. I'm looking to get into my first ever property as a live in duplex with a 3.5% down FHA here in Chicago (McKinley Park, Bridgeport, or Pilsen) The problem I am running into is that any properties I analyze on the MLS will not cash flow even after I am moved out and the property is fully rented. I feel that this is due to higher mortgage payment and mortgage insurance with my 3.5% down (a lot of them would cash flow fairly well with 20% down and no mortgage insurance.)

My question would be, would it ever be wise to take a deal with negative cash flow that I could cover with my personal finances as a trade off for not having the capital now to put down 20%? Or better off to wait and continue building a better down payment / look for off market deals? To be fair, I have not put effort into finding an off market deal at this point. 

[Bill B.]

And now a word from the other side of the aisle. 

1)While you were househacking, assuming this is the kind and price of place you would rent anyway, you are several hundred per month better off as you are paying down your mortgage instead of your landlords. 

2) By the time you move out/move on I’m going to assume rents will rise at least $100/mo per side so you are cashflow even. If you don’t think rents will rise, don’t buy.

3) the reason this property isn’t cashflowing, as you said, if because of your low downpayment. BUT, the same people who say not to buy it because it’s not cashflowing would call you dumb for paying extra towards your mortgage. But putting more down is exactly that, paying more towards your mortgage. 

4) you’re getting a better internet rate for the next 30 years because you’re living in it now. That will save you $10’s of thousands of dollars. 

5) you’re paying off at least $210/mo towards your loan, so while you’re cashflow negative you’re still making a profit. If this was an interest only loan and it broke even you’d be in the same spot. 

6) one of my best investments now is a townhome on the lake that cashflowed negative $900/mo for 7 years. it was making a profit of about $10k/year the first year and now that it’s paid off it makes over $20k/year, all cashflow. This is the same tenant for 7 years. Probably 4 phone calls. A new garage door opener, a fridge and a leaky faucet. 

If this is your only way to get in to real estate and are confident you can afford it. I don’t think anyone on BP thinks interest rates or prices will be lower in 5 years. Prices could easily increase faster than you can save more for a downpayment.