All Forum Posts by: Maxwell Milholland

Wow thank you everybody for making this into one hell of a discussion!

@Ray Johnson Hey Ray. I have not done a break even analysis just yet. I will look into that. And I completely agree, a negative cash flow property certainly is not ideal and will take longer to break even. But, even if it does take longer, does that make it a bad investment? It will break even at some point, at it shouldn't take that much longer if the only difference is a couple hundred a month.

@Andrew Boettcher hey Andrew. I don't think in this scenario I'm banking on appreciation. At some point in the future, this property will be completely paid off by the cumulative rent payments of my tenants, leaving me with a property that is worth far more than the total additional price I paid per month to offset the negative cash flow. If the property doesn't appreciate at all, I still make money over the long term. If it goes down in value, I will still probably make money over the long term. Im having trouble understanding how this is not wise.

@Joe Villeneuve Hey Joe thanks for the reply. Suppose I get an FHA loan on a 100k property, and my total out of pocket cost to own (or control) the property is 10k. The property has a negative cash flow of 100/month. After year 1, cost to control is 11,200, year 2 12,400, year ten 22,000, and year 30 46,000. If I took out a 30 year loan, and got no appreciation at all, I'm left with a property I paid 46,000 for, but is worth 100k. Of course there are things in there like vacancy occasionally, maybe taxes go up, and a slew of other things but for proof of concept, this deal looks good to me. I made ~50k.

Hello Bigger Pockets community! I've read enough books at this point to have a pretty basic grasp on the fundamentals of real estate. One principle that comes up time and time again is cash flow. There seems to be a consensus that a positive cash flow is what an investor should strive for, and a negative cash flow is bad. I'd like to hear your opinion on this matter. I think that this is perhaps too black and white. Take for example a duplex that cash flows 200 a month. Decent investment right? It's certainly better than one that has a negative 200 cash flow. But is the negative cash flow property BAD? I don't think it is. The only difference between the two is 400 dollars a month. 4800 a year. Sure, that's a good amount of money. But, the reason why the positive cash flow property is an asset, at least in my mind, is due to more than just the income it produces. Tax benefits, loan paydown, and potential appreciation all are factors that make this a valuable asset. These same factors also make the negative cash flow property an asset, just one that doesn't pay for itself. I don't think that's bad, so long as you have prepared for that and have other income to offset that. Essentially, I see it as paying a monthly fee for an asset that will make you far more money in the long run than what you pay for it monthly. Again, a positive cash flow property is better, but I think a negative one CAN be okay. What do you think? I'm open to being completely wrong here.

@Victor S. I hear what you're saying, but cash flow is not the end all be all. Loan paydown and tax writeoffs should also be considered. Also, this property would have been my primary residence, and the fact that it is to my liking and in a good area are both important considerations for me. In this scenario, a break even cash flow deal looks like a win to me. And given the fact that houses will more than likely appreciate over the long run, I can be pretty confident that a break even cash flow deal should turn out pretty okay given all the considerations.

@Victor S. When running the numbers I used the potential income from both units (its a duplex) and it just about broke even. This seemed decent to me because every single other property I looked at was cash flow negative, and I really liked the property and the area, which is huge for me. So I was willing to accept a break even cash flow.

@Jonathan Bowen Hey Jonathon! That is great advice I hadn't thought about it like that. I will try to be more open and clear from now on. Communication is key in all areas of life

@Caroline Widjaja

Hey Caroline! How do you know the prices will be cooling off?

Thankyou to everyone you guys and gals are absolutely fantastic. I will try to respond to as many posts as I can!