How negative cash flow can be okay in very specific situations.
One of the questions I get frequently asked is: Should I keep the property I have as a long-term rental or is it okay to have negative cash flow? This will vary depending on the specific situation, but in general, there are a couple of main points that fit most scenarios.
As a general rule, you should be making at least $500 a month. Otherwise, you have negative cash flow. In some cases, negative cash flow could be okay—if you want to hold real estate long-term or you need some significant tax write-offs, it could be okay. Plus, I frequently see rental rates that are significantly below market, and sometimes that means someone could get a little bit of a deal on the price, and then they’ll eventually get up to market value.
“This will vary depending on the specific situation.”
The biggest criterion to show if you will have negative cash flow on a property is whether you can afford the payment. If you’re going to have to subsidize the payment, can you afford it along with your other expenses? Also, can you afford it if the entire property is vacant for a couple of months or the tenants stop paying?
If you can’t or if it’s going to cause you financial hardship, then the negative cash flow is probably not a good idea for you. However, if you can afford it long-term and you can get the cash flow where it needs to be in the next few years, then it may be a good idea to rent the property out.
If you have any questions about this or anything involving real estate, I’d be happy to help. Just call or email me anytime.