Unique situation - negative cash flow OK?

Question

Hi All,

I have a unique situation - I bought a house all cash in 2021 in Omaha and rent it long term making all cash flow (minus taxes/insurance).  I also rented my primary residence in Denver and have $800/mo cash flow on it.  I moved to Omaha, and want to get into another long term, single family rental.  With these rates, I will likely be negative cash flow or break even if I am LUCKY on a single family.  I'm 37, and hoping to get into these houses for long term equity gains and eventual cash flow on new purchases.  Should I take the risk and buy a house with a negative cash flow since I have so much liquidity from my other 2 rentals?  If rates drop, the house could cash flow easily.

Thanks in advance!

Alecia Loveless · Answer

@Amanda Feack I wouldn’t buy a negatively cash flowing property. I’m looking at a 5-unit tomorrow that the numbers just don’t make sense on but we scheduled the showing before the listing agent sent the extended listing packet. So will be going and giving feedback but am no longer considering this property.

I would wait for another deal to come along that will cash flow positively, one is out there, you will find it.

Bruce Woodruff · Answer

You'll get a lot of opinions on here, going both directions..

Personally, I am ok with zero or little cash flow (but not negative) ONLY IF the asset will certainly appreciate nicely, and within a  period of 2-5 years (just my own rule)

But I don't like the concept of having your other assets cover this one, each asset should stand on it's own.

Just my $0.02....

David M. · Answer

@Amanda Feack

In general, I'm fine with that approach.  I do look at my rentals as a "portfolio."

For example, years ago I refi'ed 3 loans into 2 --- so one property became free and clear.  If you looked at the individual properties, obviously the one cashflowed great and the other two were negative.  But, as a whole/portfolio, I was doing fine / better (because of the refi to lower rates) and it was cheaper since I only had to get 2 loans instead of 3.

So, it sounds like you are doing something similar.  If so, I have done it, and its works out just fine and I didn't see much of a downside.  I suppose the issue is when you liquidate, depending on what order you sell may imbalance your numbers.  But, I saw it as a moot issue since either I'd have a huge pot of cash to cover the bills or I'd be just very positive each month...

Good luck.

Matt M. · Answer

Are you factoring in capx, and other expenses? I personally wouldn't to it, but everyone is different.

Kyle Joseph · Answer

Amanda - Is there any reason that you are focused it being a single family rental? Would a small multifamily cashflow and be a better option for you?

Unique situation - negative cash flow OK?

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