Should I Buy More?
Hello, everyone. This is my first post, so the 'newbie' forum seemed appropriate.
I recently entered the investors field when I managed to purchase two homes (okay, both sides of a single duplex) with no money down. And therein lies the seed of my question.
The cash flow on these two homes is at present just about neutral (I'm a few dollars to the good). But I did get cash out at closing.
I have the opportunity to buy a third home for no money down, but the cash flow would be five hundred dollars in the negatives monthly. I'm interested only because I see the prices of these homes skyrocketing (the two I bought have already increased 12% in value over the last five months) and I believe there is a reasonable chance to increase rents over time.
I can afford the negative cash flow for awhile because of the money I had from the previous closing. I'd be relying on increased rents to slowly whittle away that negative cash flow and increased land values to allow me to refinance in 4-5 years (hopefully getting fixed rates on 80% instead of my current variable rates on 100%).
So... is it just nuts to buy a property with a cash flow that bad, or might it be worth it in the long run?
Thanks for your help.
Hi Well I would rethink buying a property with a cashflow that is that low or negative. Thats me personally. While on the one hand someone else is paying for your property ( Always a good thing), on the other hand you aren't really getting any money out of managing the property, setting anything back for capitol repairs or anything like that. I mean eventually you will build equity and can refinance lowering your payment and increasing your cashflow, something catastrophic could happen in the meantime, particularly if you have more than one proerty like this. Are the units way under market rent? I would raise rents if I could. As for the other property....negative $500 a month??? good heavens to me that is a no brainer. I think REI is supposed to pay you not the other way around
Maybe I am wrong and if I am I am sure some of the more exprienced REI guys can give you better advice but my advice is to look for better cashflow. It would just make me nervous about the unforseen especially with that much negative cashflow
Have a good weekend
[addsig]
Well, maybe not nuts. But I'd want to be pretty sure about that appreciation and not worry that you are at the wrong edge of a bubble.