Negative Cash flow rental
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Thread: Negative Cash flow rental

  1. #1
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    Negative Cash flow rental

    Hey all:

    Just wondering what your opinions are of a slightly negative cash flow rental property? about $100-200 per month.

    I know there are alot of tax benefits to rentals and also if they produce negative flow which potentially make it a positive.

    Im trying to decide to hang on to or sell this property, there has been about a 100k profit since I purchased it.

    Thanks


  2. #2
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    I've been involved in rental properties since the early 70s and NEVER bought a negative cash flow property, only positive cash flow. This kept me out of the market when it was overpriced and headed for a fall. There were times I looked pretty dumb for 3 or 4 years then suddenly looked real smart.

    Since you are already in it that doesn't matter. At this point you need to figure out what your investment plan is. Do you want to hold on indefinitely, pay off the mortgage and have a retirement income? Did you get in for a quick flip? Do you have some other investment in mind?

    I will say I have always regretted selling a property just because I could cash in some $$$$$ profit. Those always turned out to be the ones I should have kept. I do not regret selling the dogs that were dragging me down or selling one property to buy a better one, although in that case, you should consider keeping the first property and mortgaging rather than selling to raise money.

    Selling JUST because it has gone up and you can cash in a profit is almost always a bad reason.

    As time goes on and rent increases while your mortgage payment stays the same, it should turn into less of a negative cash flow and end up a positive cash flow property. You should go for a small increase every year.
    Last edited by Rusty O'Toole; 2017-03-11 at 01:14 PM.

  3. #3
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    Big Screen

    Rusty

    Thank you very much for this very insightful paragraph. You are 100% right and I was thinking along the same lines.

    Im trying to figure out exactly as you said because I may want to cash out and by another better property in the future however maybe I should just rent it until Im ready to do that.

    One of my issues is I bought another condo as an investment and with the down market in Calgary the one I am referring to as keeping is much more rentable, however if I don't decide by Monday Im going to be paying much higher CMHC premiums on the new one as the premiums are going up by an entire percentage point on the 17th. But if I sell I can put 20% down on the new one. The new one isn't the better property however it was just an investment.

    Cheers

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  5. #4
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    Quote Originally Posted by Rusty O'Toole View Post
    I've been involved in rental properties since the early 70s and NEVER bought a negative cash flow property, only positive cash flow. This kept me out of the market when it was overpriced and headed for a fall. There were times I looked pretty dumb for 3 or 4 years then suddenly looked real smart.

    Selling JUST because it has gone up and you can cash in a profit is almost always a bad reason.
    I would say in the current market it would have been closer a decade. Anyways regarding rent increases I saw a post on Toronto Housing woes on FB about how much rent increased over a 20 year period (below). I've also noticed this myself, I own two properties near Frankfurt Germany and we bought them five years ago and every three years I raise the rent to the local average. What started at 395€ went to 425€ and next year to 470€. All the while our mortgage has remained the same.

    Just currious what city do you own property in

    ---------------------

    Rent control in action:

    Tenant's rent was $850 in 1990 for a brand new bachelor apartment. Landlord applied the allowed increase every year. Tenant's rent today is $1741.75 for a now 26 year old apartment!

    Total rent tenant has paid from January 1990 to March 2017 is...are you sitting down for this? $431,133.57

    Here are the increases and the new rent per year:

    1990 - $850
    1991 - 5.4% - 895.90
    1992 - 6.0% - 949.65
    1993 - 4.9% - 996.18
    1994 - 3.2% - 1028.06
    1995 - 2.9% - 1057.87
    1996 - 2.8% - 1087.50
    1997 - 2.8% - 1117.95
    1998 - 3.0% - 1151.48
    1999 - 3.0% - 1186.03
    2000 - 2.6% - 1216.97
    2001 - 2.9% - 1252.16
    2002 - 3.9% - 1300.99
    2003 - 2.9% - 1338.72
    2004 - 2.9% - 1377.54
    2005 - 1.5% - 1398.21
    2006 - 2.1% - 1427.57
    2007 - 2.6% - 1464.69
    2008 - 1.4% - 1485.19
    2009 - 1.8% - 1511.92
    2010 - 2.1% - 1543.67
    2011 - 0.7% - 1554.47
    2012 - 3.1% - 1602.66
    2013 - 2.5% - 1642.73
    2014 - 0.8% - 1655.87
    2015 - 1.6% - 1682.37
    2016 - 2.0% - 1716.01
    2017 - 1.5% - 1741.75

  6. #5
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    Quote Originally Posted by Lost in Space 2 View Post
    I would say in the current market it would have been closer a decade. Anyways regarding rent increases I saw a post on Toronto Housing woes on FB about how much rent increased over a 20 year period (below). I've also noticed this myself, I own two properties near Frankfurt Germany and we bought them five years ago and every three years I raise the rent to the local average. What started at 395€ went to 425€ and next year to 470€. All the while our mortgage has remained the same.

    Just currious what city do you own property in

    ---------------------

    Rent control in action:

    Tenant's rent was $850 in 1990 for a brand new bachelor apartment. Landlord applied the allowed increase every year. Tenant's rent today is $1741.75 for a now 26 year old apartment!

    Total rent tenant has paid from January 1990 to March 2017 is...are you sitting down for this? $431,133.57

    Here are the increases and the new rent per year:

    1990 - $850
    1991 - 5.4% - 895.90
    1992 - 6.0% - 949.65
    1993 - 4.9% - 996.18
    1994 - 3.2% - 1028.06
    1995 - 2.9% - 1057.87
    1996 - 2.8% - 1087.50
    1997 - 2.8% - 1117.95
    1998 - 3.0% - 1151.48
    1999 - 3.0% - 1186.03
    2000 - 2.6% - 1216.97
    2001 - 2.9% - 1252.16
    2002 - 3.9% - 1300.99
    2003 - 2.9% - 1338.72
    2004 - 2.9% - 1377.54
    2005 - 1.5% - 1398.21
    2006 - 2.1% - 1427.57
    2007 - 2.6% - 1464.69
    2008 - 1.4% - 1485.19
    2009 - 1.8% - 1511.92
    2010 - 2.1% - 1543.67
    2011 - 0.7% - 1554.47
    2012 - 3.1% - 1602.66
    2013 - 2.5% - 1642.73
    2014 - 0.8% - 1655.87
    2015 - 1.6% - 1682.37
    2016 - 2.0% - 1716.01
    2017 - 1.5% - 1741.75
    Thanks for these details as well. The property is in Calgary (Kensington) pretty prime neighbourhood close to downtown and very walkable. Hot area you may say! This property is also very unique, there are not many single level townhome style condos with their own yard, exc.

  7. #6
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    In this market, with unrealistically low interest rates, I wouldn't want to be cash flow negative. While what rust says it generally true, if you hold long enough the property will turn around, if interest rates start to increase the losses can grow faster than the recovery. If interest rates increase, the resale value will also probably decrease, making yours a lose-lose situation.

    While I know there aren't many cash flowing opportunities out there, that doesn't justify, in my mind, jumping in at all costs. If you've managed to get a capital gain of 100k I'd cash out and try to find something that cash flows with the money.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  8. #7
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    Just a Guy makes a good point. I'd add a few thoughts as well

    - What's the local market like? Are rents increasing or are landlords desperate to find tenants
    - Rent Control how much can you increase the rent by?
    - What's the tax situation? It's entirely possible for a cash flow negative property to show a tax "profit"

  9. #8
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    Feb 2014
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    616
    Quote Originally Posted by coombsm View Post
    however if I don't decide by Monday Im going to be paying much higher CMHC premiums on the new one as the premiums are going up by an entire percentage point on the 17th. But if I sell I can put 20% down on the new one. The new one isn't the better property however it was just an investment.
    As long as you get your mortgage approval before the 17th, you will be grandfathered the lower premium until you close.
    That being said, if your current property is negative and the new one you want to buy isn't the better one, why are you buying it in the first place? I assume the new one will be negative as well? Personally, I wouldn't invest in condos. Sell what you have and buy a multi-unit property. The cost of acquiring and maintaining 2 condo units is way more than 1 duplex for example. The more units in the dwelling, the lower are your costs and higher cash-flow potential.

  10. #9
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    Oct 2016
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    Considering that its not a big deal to buy quality businesses at 7-10X cashflow these days (ie: cashflow yields in excess of 10%), I don't see any attraction in buying RE with negligible or negative cashflow.

    Any capital gains achieved are speculative at best, and probably will be wiped out as the market undergoes its normal asset rotation.


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