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Updated over 7 years ago on . Most recent reply

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174
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Peter K.
  • Real Estate Broker
  • Raleigh, NC
69
Votes |
174
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Why is my cash flow in the negatives? Is this a bad investment?

Peter K.
  • Real Estate Broker
  • Raleigh, NC
Posted

So I'm looking into buying this rental property that just came on the market by a University. It is a 3 BR 3 BATH apartment Unit and the market is hot for these here and they sell quickly so I did my analysis, included all the things like capex, repairs, whatnot, and still come up negative. I know the rent price is fair market value and common sense tells me I should be getting cash flow but math does not, am I pricing CAPEX, repairs a little too high? What are your thoughts based on my calculation?

Most Popular Reply

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Andrew Johnson
  • Real Estate Investor
  • Encinitas, CA
3,788
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3,286
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Andrew Johnson
  • Real Estate Investor
  • Encinitas, CA
Replied

Peter Kim So two flaws...

1.) You're analyzing the deal with 15% down. Most investments require 25% down. Rerun your numbers with 25% down so you're at least analyzing this in a like-for-like scenario. Side note, it's also why the 3.5% down FHA deals often have trouble cash-flowing.

2.) Not all properties are meant to be cash-flowing investment properties. Condos are even tougher because of HOA fees, restriction on the % of rentals, etc. Not to mention if you're selling in an area with owner-occupants they aren't seeking a return.

Basically, not all properties are meant to be investments. Not all "investment" properties are meant to cash-flow the first day you buy it. I look at my SFR in Encinitas (where I live) and I'd bleed cash like a stuck pig if I tried to rent it out. And while it's great that you're qualified for a 15% down mortgage, you're better off using 25% down if you're looking at an investment.

I hope that helps, it probably doesn't... 🤷🏻‍♂️

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