Facing Negative Cash Flow While House Hacking – Looking for Advice

[Beck DeYoung]

I’m struggling to wrap my head around the reality of negative cash flow. I’ve been exploring multi-family properties for house hacking in both the Philadelphia and Boston areas for several months, focusing on the cheaper areas around the cities rather than in the cities themselves, as housing costs are incredibly high. Despite this, every analysis I’ve done shows not only negative cash flow while living in the property (which I expected) but also significant negative cash flow even after moving out and renting all the units.

While I’m living there, my housing costs would be higher than they are now because I currently rent very cheaply with three roommates. Having them join me in the house hack isn’t an option, as I can’t afford a place with enough bedrooms in a single unit in the areas I want to live. So, it would just be my partner and me, which limits our options in the neighborhoods we’re comfortable with. I’m also at a life stage, where I’d prefer to just live with my partner and not rent out individual rooms in my unit.

When I move out, the rental income would sometimes just barely cover the mortgage and taxes (usually not even insurance). However, this is what many real estate books call “phantom cash flow,” which is considered a red flag. After moving out, I’d still be out of pocket $750 to $1,500 a month to cover vacancy, capital expenditures, maintenance, and property management. And on top of that, I’d be paying rent or a mortgage somewhere else.

I understand real estate is a long-term investment and that appreciation and equity plays a role, but losing money month after month, even post-move-out, is hard to justify. One of the main challenges is that I can only afford to put 5% down, which would leave me tied to this property’s expenses for the foreseeable future, making it harder to pursue other investments.

All of this said, I’m really struggling to stay positive about investing right now. It just doesn’t seem viable unless I wait a year or two to save more for a larger down payment. Any advice or insight would be appreciated, with the focus on the current situation (I’m not looking to move somewhere else). Thanks!