Rookie question on negative cashflow investment

Member since 2025 · 1 post · 2 votes

After hearing to lot of bp episodes on negative cash flow, I have a question.

I am currently living in my primary residence and planning to purchase an investment property, and obviously it is going to be a negative cashflow (bay area), but I am of the opinion that as long as the rent on the investment property is atleast going to be greater than my current primary residence mortgage it can still considered as positive cash flow investment.
The investment property is going to be in a much better location (for office commute, bay area proximity) than my primary residence. I might be totally wrong in my thinking, what am I missing? Is it still not recommended to invest in this negative cash flow property.

2 Reply

76 views

Most Popular Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Ven Bud:

After hearing to lot of bp episodes on negative cash flow, I have a question.

It depends. As others mentioned can you afford the negative cash flow? Are you getting the property at market rate or below market rate? Is it in an area where assets have been or you believe will have appreciation? For example I would rather buy a property for a $100k discount that may have negative cash flow of $500/mo month for 3 years than pay market value for a property that cash flows $200/mo. Why ? Because I still have that equity and if I were to liquidate it I would be better off.

7e investments53 Reviews

Website View Page

5 Reply

See this reply in the discussion

11 Replies

Jump to latestLatest

Sort by

Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
1y
The main problem with negative cashflow properties is this. Can you hold them in a crisis?
At some point in the future, the economy will have another crisis. It won't be the same as an oil shock, dot-com bust, GFC, or COVID, but something will happen. If you lose your source of primary income, do you have enough cash to make it through the crisis? If you have vacancy or in need of a large repair, will you have the cash to also manage that? Those that cannot weather the storm get wiped out.
Having cashflow positive properties provides a margin of safety you just do not have with negative cashflow.
Why are you focused on buying in your backyard? I've done most of my investing out of state.
1 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Ven Bud:

After hearing to lot of bp episodes on negative cash flow, I have a question.
I am currently living in my primary residence and planning to purchase an investment property, and obviously it is going to be a negative cashflow (bay area), but I am of the opinion that as long as the rent on the investment property is atleast going to be greater than my current primary residence mortgage it can still considered as positive cash flow investment.
The investment property is going to be in a much better location (for office commute, bay area proximity) than my primary residence. I might be totally wrong in my thinking, what am I missing? Is it still not recommended to invest in this negative cash flow property.

It depends. As others mentioned can you afford the negative cash flow? Are you getting the property at market rate or below market rate? Is it in an area where assets have been or you believe will have appreciation? For example I would rather buy a property for a $100k discount that may have negative cash flow of $500/mo month for 3 years than pay market value for a property that cash flows $200/mo. Why ? Because I still have that equity and if I were to liquidate it I would be better off.
7e investments53 Reviews
Website View Page
5 Reply
Wilson Lau
Real Estate Agent · San Jose, CA · Member since 2023 · 182 posts · 104 votes
1y
Quote from @Ven Bud:

After hearing to lot of bp episodes on negative cash flow, I have a question.
I am currently living in my primary residence and planning to purchase an investment property, and obviously it is going to be a negative cashflow (bay area), but I am of the opinion that as long as the rent on the investment property is atleast going to be greater than my current primary residence mortgage it can still considered as positive cash flow investment.
The investment property is going to be in a much better location (for office commute, bay area proximity) than my primary residence. I might be totally wrong in my thinking, what am I missing? Is it still not recommended to invest in this negative cash flow property.
Hi Ven. As far as calculating cashflow, I would still suggest considering all the PITI and other overhead expenses. At the end of the day, cashflow is what ends up in your pocket. I personally think that gives you a better mindset as an investor and helps you scale in the future.

When you invest in 1-4 units residential property in the Bay Area, you are investing for the appreciation or value-add potential because most properties don't generate positive cashflow.
0 Reply
Bryan Stengel
Real Estate Agent · Long Island · Member since 2018 · 88 posts · 38 votes
1y
Hi Ven, I personally consider properties that at least cash flow with full occupancy. Out of state investing in cities within a reasonable driving distance may be a good option. I'm not sure what exactly what is near you. I live in New York and majority of the inventory on Long Island is too expensive for even renting. You'd ultimately break even just to keep the lights on. The tenant laws are also not on our side. Appreciation is very much possible, but my question to that is when do the markets reach their peak and prices start to soften up a bit. It's always way better to have cash flow than none at all. I will say though if this is your only option and you're confident in finding a deal below market value, then it might be worth it.
1 Reply
Greg ParkerBusiness Member
Realtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 663 posts · 536 votes
1y
Negative cash flow is not bad. As others said, if you have good equity and could sell if you get in a bind, you are ok. And, factor in the depreciation and other tax benefits, deductions, home office, vehicle expenses, etc. And, appreciation is always a nice bonus.
I assume a long term hold is your plan.
[email protected]
MGM Property Pros LLC
View Page
0 Reply
Bradley BuxtonBusiness Member
Real Estate Agent · NV · Member since 2023 · 1k+ posts · 713 votes
1y
@Ven Bud
Are you saying your portfolio of your primary and the investment would be cash flow positive? Is the cash flow loss a lot less than than the equity and what is the plan to be cash flow positive? Eventually you would exit (sell) and that would have more equity to make a profit after the cash flow losses or the investment generates positive cash flow in year 2,3,4 etc. There are pros/cons to the bay area vs out of state and everyone's situation is different to reach their goals within their own timeline.
0 Reply
Mike PaolucciBusiness Member
Realtor · Columbus Cleveland Dayton, OH · Member since 2022 · 495 posts · 551 votes
1y
Quote from @Ven Bud:

After hearing to lot of bp episodes on negative cash flow, I have a question.
I am currently living in my primary residence and planning to purchase an investment property, and obviously it is going to be a negative cashflow (bay area), but I am of the opinion that as long as the rent on the investment property is atleast going to be greater than my current primary residence mortgage it can still considered as positive cash flow investment.
The investment property is going to be in a much better location (for office commute, bay area proximity) than my primary residence. I might be totally wrong in my thinking, what am I missing? Is it still not recommended to invest in this negative cash flow property.

Have you thought about OOS investing where the numbers make more sense and you don't have to run a negative? I ended up doing that in 2021 and found properties that have made me money rather than costing me money every month.
[email protected]614-892-9184
Reafco - Mike Paolucci 512 Reviews
Website View Page
0 Reply
Joey BanasihanPro Member
Investor · Boise, ID · Member since 2019 · 233 posts · 188 votes
1y
Hey @Ven Bud, I like how you’re approaching this— you’re thinking beyond just cash flow and considering the full picture. Cash flow is important, but appreciation, principal paydown, and tax advantages are also key factors in long-term real estate success.

Your logic makes sense—if your investment property’s rent offsets your primary mortgage and you’re in a strong appreciation market, it could still be a great long-term play. The key is making sure you’re comfortable with any short-term negative cash flow and have a solid plan for how that property will perform over time.

We work with a lot of Bay Area investors who purchase in Boise for this exact reason. The market here offers strong appreciation, but we don’t just rely on that—we focus on highest and best use. By targeting properties with value-add potential (ADUs, duplex conversions, rent-by-room setups, etc.), we’ve helped investors get much closer to breakeven. Sometimes, it’s about taking reasonable action on a property that has the right fundamentals and weathering the storm—because on the other side, you have an asset that performs really well.

Happy to connect and share more! Either way, I think you’re thinking about this the right way—it’s just about making sure the numbers align with your long-term goals.
[email protected]
0 Reply
Dominic M.
Property Manager · Northern Virginia & DC · Member since 2020 · 157 posts · 69 votes
1y
We underwrite individually and on the portfolio level - stick with me here:

Would we buy a negative cashflow deal if it has equity and meets the rest of our criteria?

Short answer, yes

Long answer, maybe - if the portfolio offsets the negative cashflow and on the portfolio level we meet our positive cashflow metrics then yes otherwise no.

Essentially, underwrite your deal with conservative assumptions, add 6+ months vacancy and one large capex item. Can your income offset the negative cashflow and can you get through this?

I would step back and figure out your exact investment thesis and the returns you are looking for. Underwrite each deal with conservative assumptions.
0 Reply
Justin Winn
Real Estate Agent · Mountain View, CA · Member since 2016 · 70 posts · 59 votes
1y
A lot of great points in this thread. One thing I didn’t see mentioned that is specific to the California investing is rent controls. Part of your calculus for whether to buy, hold and when to sell should be if the property is subject to rent controls and how that will effect future cash flow while you hold the property.
If you have any questions about that and where to get that information feel free to let me know.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.