Buying a Rental Property that has negative cash flow in Austin

[Daniel Tisdale]

Hi,

I have been presented with a very unique and rare opportunity to purchase the home right next door to me in a very hot neighborhood in Austin, TX. Because of this opportunity to potentially sell both lots to a developer, I am very keen on trying to make this work for the first few years because of the potential long term upside. The one downside that I see to this strategy is that after accounting for all expenses, mortgage, insurance, taxes, etc, there would probably be a negative cash flow of around $400/month. Normally, I would absolutely run away from this deal because of the negative cash flow, but I foresee the Austin market continuing to boom and I could potentially raise the rental rates over time and generate positive cash flow. Does anyone have any advice for me regarding this type of deal and thoughts on it?

Thanks,

Daniel

[Joe Villeneuve]

The most expensive word in the dictionary is "rationalization".