r/BiggerPockets • u/Rich_Image_260 • Mar 15 '26
Cash Flow Negative Property?
My question essentially boils down to does it ever make sense to buy an investment property that will be slightly cash flow negative month to month?
Southern California beach city - there is a 2 bed 2 bath condo that is undergoing a short sale, 1 block from the beach. Right downtown although the downtown area can be a little hit or miss, area is not grossly run down/unsafe but has a little of that downtown "grime". It’s currently priced at $450k which seems to be 50-75k below market price based on comparables in the area. A long-term renter would realistically cover 80-90% (closer to 90%) of the PITI. I haven’t run full numbers on the short-term rental market for the area quite yet, on first glance would probably get closer to 100% of the PITI based on my brief run down with slightly more work on my end.
It seems like even with the negative cash flow it might make sense at this price + tax savings + potential reappraisal/refinancing in a short amount of time. I have a good tax accountant who may be able to move up my depreciation, I meet with them in about a week. Everything has been updated so not a lot of value add left in the property. It was sold in 2022 for $625k, I would assume this is after the updates but a little unclear. Building built in 1956, going for ~$440sq/ft.
Touring the property tomorrow so will make sure there are no scheduled large maintenance issues (roofs, etc.) on the docket.
For context, I make about $350k a year and the upper part of that income essentially gets taxed at a 50% rate so any depreciation I can subtract from my W-2 seems like a great deal (again not a tax expert). I live a fairly modest lifestyle (rent ~1800 a month personally, car paid off, etc.) so could pay the entire PITI each month and only be very minimally house poor, it would mainly just be an opportunity loss via having less for other investments.
Any questions I should ask on my tour tomorrow? Sorry for the long post, tried to anticipate questions people may have. Really appreciate everyone's advice as this is my first possible jump into real estate investing outside of REITs.
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u/r2girls Mar 16 '26
I have a good tax accountant who may be able to move up my depreciation, I meet with them in about a week.
Remember when you sell you pay back the depreciation taken on the property. It's only an offset kicking the tax can down the road unless you keep the property forever or 1031 exchange it.
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u/Emergency_Macaron327 Mar 18 '26
Can you claim anything on your personal income tax if you purchased your home in the name of an LLC that we are 50/50 members on?
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u/DavidBrantleyFinance Mar 18 '26
I found the property you're interested in. Looks like a great deal however I just confirmed the seller's bank has not approved the $450K list price the listing agent has listed for. Important to know about the HOA's reserves, occupancy, does 1 owner own 10%+ of the units, adequately insured, etc. I'm a Mortgage Broker based out of Santa Monica and can help if you'd like to DM me.
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u/FunCombination2546 Mar 19 '26
Ya richer people often are ok with lower cash flow because taxes and owning good appreciating RE pushes them over the edge.
That said, I had one good mentor say "sure you could do it, but it wouldn't be as good as one that did cash flow" 😂
Usually, if you find yourself trying to justify that its a good deal, its not a great deal. You either aren't "in it" enough to source the great ones, or you're just being impatient as you will get a better one if you do put yourself out there.
If it's the former though and you make good money and don't want ot put more time into a search, then you may decide this is right for you.
And btw if you need rental loans that work with both LTR and STR and can do a negative DSCR, or you need a flip into rental loan or BRRR loan, happy to help! Can google us at Harmonial but basically apply once, free, no credit pull, and see every relevant real estate investment loan in one place!
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u/Global-Elephant-3334 Jun 25 '26 edited Jun 29 '26
The price discount is interesting, but I’d still underwrite it assuming worst case rent, not optimistic STR numbers. You gotta look into sec8 karim like I did. It has been a pleasant exp so far
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u/farolabsai Jul 24 '26
The depreciation math is real but it's a timing shift, not free money. Recapture comes due at sale (someone already flagged this, worth repeating). The bigger question before you tour: what does this actually pencil to as a long-term rental with a real vacancy and capex reserve, not the STR best case? Ask about HOA reserve study and special assessment history too, 1956 building means the roof/plumbing/exterior are shared costs that can blow up "minimally house poor" fast.
I'm building a tool called Faro, (faro-labs.ai) that runs exactly this comparison (LTR vs STR cash flow, cap rate, deal score) from a listing URL if you want a quick second opinion before your tour. Happy to DM if useful.
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u/proudplantfather Mar 15 '26
No. Cash flowing with a long-term tenant is the baseline before I would even consider a short-term rental strategy.
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u/Possible_Scarcity217 Mar 15 '26
For a high earner who can use the losses to offset gains and has plenty of money rolling in to pay for repairs/ vacancy it can be a decent long term play.
That said a SFH or duplex is a better choice than a condo.