need help analyzing a cash flow negative deal
Need some help evaluating rentability of my condo (current primary home):
2Bed2Bath condo in Burlington, MA. Average rent in the area is ~3100. If I was to rent it out I would break even or maybe even have a slightly negative monthly cash flow. Its a great neighborhood and has seen ~25% appreciation in the last 5 years. Condo is in a great shape and would need minimal annual repairs with everything external covered by HOA. Overall ROI return will be 9%. Need help in deciding if it is worth renting. My thoughts:
Why renting would make sense:
1. Despite negative cash flow, ROI is not terrible and real estate appreciation is great in this area
2. As a first-time landlord, I'd feel comfortable renting this out knowing that it will not need heavy repairs and know the area well
Why renting will not make sense:
1. Could take the appreciation and buy in another place with a better cash flow and appreciation
I own a property in Burlington and I am happy with it. it depends on what you have mortgage and condo fee. Burlington is one of the good neighborhoods and growth potential.
Would you be open for a quick chat on phone?
I'm near Burlington in Beverly. The thing that scares me about condos is the lack of control over the HOA fees. At any point though could increase high enough to where renting isn't feasible. Could you house hack a duplex in the area?
@Sanket Patke
Hello,
I am an amateur investor, can you help me understand how NEGATIVE cash flow, still gets you a 9% ROI?
I thought cash flow had to make sense to get into a deal?
Thank You
@Daniel McDonald My HOA is 400 and they keep increasing it 2-3% annually so you are right. I am thinking that can be offset by increasing rent periodically at the same rate. I am a rookie so don't know much about duplexes in the area. Happy to chat. Are there any towns in MA or NH that you can recommend that would have a better cash flow and appreciation?
@Jesse Jamrowski 9% would come from someone paying my principal portion of the loan.
I, personally, prefer not to be cash flow negative assuming 20% down on a deal. Couple reasons for this.
1. sucks to lose money every month when you just put down 20%, which can be a lot of money
2. what if there is some kind of emergency i.e. large maintenance, non paying tenant, etc, then you are really in a bind and obviously that comes out of your personal funds
3. While 25% appreciation in the last 5 years is good, truthfully, its not anything special considering the circumstances the last 5 years. Most major markets did that much appreciation and plenty of markets in the Midwest did even better during that time and those markets still cash flow today. There are cash flowing and appreciating options out there if you are comfortable with out of state investing especially in the Midwest.
I'm based in the Seattle area but invest in Midwest markets where I have 9 doors now. All cash flowing. On top of that these markets have done very well in terms of appreciating in the last 5 year (See Memphis 50% increase, See Detroit 100% increase). Happy to connect and discuss more about your current situation and other options available to you.
Quote from @Sanket Patke:You’re not to far from me. All the surrounding towns are great appreciation but cash flow is definitely a struggle around here but if you house hack then you’re going to be less worried about cash flow because you’ll be living there. Always happy to chat about my experience.
@Daniel McDonald My HOA is 400 and they keep increasing it 2-3% annually so you are right. I am thinking that can be offset by increasing rent periodically at the same rate. I am a rookie so don't know much about duplexes in the area. Happy to chat. Are there any towns in MA or NH that you can recommend that would have a better cash flow and appreciation?
@Jesse Jamrowski 9% would come from someone paying my principal portion of the loan.
Ditch the HOA-based rentals, even if it's a house. Burlington is solid.
Cash flow negative is a metric of how much you're putting down. Can you afford to put down more to make it flat, or are you willing to keep reserves aside to manage the lack of cash flow. If either/or, then the real question is the property solid enough to justify this action?
Most, if not all, condos are not. I'd look for SFR, for sure.
Negative cash flow is a problem. If you were asking us to analyze a possible purchase, I'd say to run away. You already own it, though. Looking at it that way, you must be coming up with a 9% ROI by looking at continued appreciation? ROI becomes less and less accurate as time goes on. Also, your ROI is based on a sale, though the scenario presumes you won't be selling.
Forget about appreciation - it's impossible to predict. I recommend you focus on your monthly cash flow. With you subsidizing this every month will it be sustainable for you? That will limit your ability to buy other investment properties. Keep in mind you'll likely have another mortgage from your next primary residence to pay. I'm a big fan of equity before cash flow, so if you can make it work and don't plan on rapidly expanding your investment portfolio, this could be a way to gain equity as the tenant pays down your mortgage.
You already said it... Option #2 . Invest for cashflow and get in the way of appreciation. If you have seen great appreciation in that area, Cash Out. Find an investment in an area that the growth is obvious, and the rents and environment is good for landlords. If you are new to investing find the right team to take care of you.
Thanks all for your inputs. My challenge is that its hard to find deals with a strong cash flow in MA due to high property prices and I am not seasoned enough (and brave enough) to start out with an out of state deal or an in-state property that would need major fixing. My thinking is that I will use this as a learning experience, not have any cash flow, and with a 5-7 year horizon, use the appreciation to expand my portfolio some place else. The $$ I will save on the closing costs can offset the slight negative cash flow that I may encounter.
Quote from @Sanket Patke:
Thanks all for your inputs. My challenge is that its hard to find deals with a strong cash flow in MA due to high property prices and I am not seasoned enough (and brave enough) to start out with an out of state deal or an in-state property that would need major fixing. My thinking is that I will use this as a learning experience, not have any cash flow, and with a 5-7 year horizon, use the appreciation to expand my portfolio some place else. The $$ I will save on the closing costs can offset the slight negative cash flow that I may encounter.
Investing out of state can be scary, but having a trusted team in place to help will make the process much easier. I'm based the Seattle area but mainly invest in Midwest markets. I have a great team in place on the ground that handles everything end to end for me.