Newbie Investor Dilemma: Is it Worth Investing in Properties with No Cash Flow?

Question

Hey there, folks! As a newbie investor, I've been actively exploring the real estate market and analyzing various properties, both single-family and multi-family, within and outside of my state. However, I'm facing a bit of a roadblock as I'm unable to find any property that generates a good cash flow, if any.

This got me wondering, is it really worth investing in a property that generates no cash flow or, worse still, has a negative cash flow? Sure, there's the aspect of building equity over time and the potential for appreciation, but I'm struggling to see how this will help me achieve financial freedom in the long run.

So, I'm turning to this amazing community for advice and insights. Have any of you faced similar challenges? What approach did you take to overcome them? Any tips or guidance you can offer a newbie investor like me would be greatly appreciated. Thanks in advance for your help

Brandon Wagner · Answer

Hey Imran, welcome to the community.

As you noticed the market is becoming tougher and tougher.  It this environment, you have to be very creative to get positive cash flow.  One think I personally have done is just find a place that will allow me to save on my personal rent expenses.

For example, If you are paying $1500 for rent monthly.

You find a place with few extra bedrooms/separate living space.  You have a mortgage of say $3000 but you rent out to 2 people for $1000 month each.  That makes your housing rent now $1000 out of your pocket. (i.e. saving you $500 per month) Along with the other benefits of appreciation, loan paydown, tax savings, etc.  That is the best way in my opinion to get started in a competitive market.

You aren't cash flow positive, but you are saving more money each month, vs renting.LICENSED REALTOR Virginia® (#0225264736)

Edward Dean · Answer

It also depends on what your long and near term goals are. Like Brandon and Hamp mentioned, if you are using the property as a house hack then location may be more important than the cash flow right now. The goal with the hack is to lower your living expenses and in a few years maybe it cash flows or at least has appreciated enough that you can sell and find something that better fits your goals then. Another thing to consider is do I expect this to appreciate more than something that cash flows right now. I am in CA where rents and prices are high. It can be difficult to make something cash flow initially but because rents are starting so high and your costs are mostly fixed after purchasing, after a few years properties here can start to cash flow pretty well. In some markets, you might cash flow great when comparing the percentage of rent to the purchase price, but over time neither the rent nor the overall property value may increase much, or it might appreciate great as a percentage gain but because you are starting so low the absolute dollar gain is fairly low (think buying something for $100k that appreciates by 50%, versus $500k that appreciates the same 50%; with one you've increased your net worth by $50k, the other by $250k).

Best of luck with it!

Hamp Lee III · Answer

I purchased a primary residence that will become a rental in 3-5 years.

It doesn't cash flow as is (if I rented it today), but the area has high appreciation.

I wanted to start with a great numbers to start, but being military and needing to find my family a good home, I took a gamble. I didn't want to live on the installation and lose free money for housing.

So right now, I basically live rent free for two years before I retire. There's time to see what the market does and adjust my exit strategy if needed.

Randy Rodenhouse · Answer

It is good to see that you're running the numbers and realizing in a lot of places it's hard to Cash Flow. I personally will not buy anything that is a negative cash flow or even break even.  I want a solid cash flow.  Appreciation for me is just icing on the cake and you cannot depend on it but only wish for it to happen.  You will probably have to start looking (marketing) for properties were the owners are willing to sell it to you with some kind of owner financing or will sell subject to.  You may also want to look into mortgage note investing as well.

Chris Seveney · Answer

Typically no but also depends on the location. I am in the DC area and if I can pick up a property in Northern Virginia that did not cash flow but paid the mortgage I would buy it in a heartbeat.

Rick Albert · Answer

How do you define "no cash flow"? Do you mean on the PITI (Principal, Interest, Taxes, Insurance) or did you include vacancy, repairs, etc.? If it just on hard costs, unless you are house hacking, it would be a hard pass.

The problem with no or negative cash flow is that it is hard to scale. At the very least I would want my cash flow at least 25% higher than my hard costs so that as I apply for more mortgages, the DTI is cancelled out by the rents.

Newbie Investor Dilemma: Is it Worth Investing in Properties with No Cash Flow?

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