My negative cashflow properties

I have posted several articles b4 for this questions, please do a search to find out details.

here is a brief summary:

whether or not to buy this investment property, should be decided based on （at least to me）

1） profitablity
2） liquidity
3） solvency
4） stress testing results

for example, I bought a property at $50k, I borrowed a 10 year term loan on this property for 100k at the rate of 5.5%, so my monthly mortgage payment is 1085.26, tax+hoa+insurance monthly is 120, so total out-going money on balance sheet is $ 1,205.26

then I sold this property at owner refinance for 100k. My loan to the buyer is 30 years term loan at the rate of 7.9%, the buyer（tenant） has to pay me monthly payment for 726.81 plus the escrow tax+hoa+insurance monthly: 120. so total in-going money on my balance sheet is $ 946.81

so my cashflow on my monthly balance sheet is

-1085.26 - 120 + 726.81 + 120 = - 358.46

See, my cashflow is negative every month! - $358.46, I have to pay from my pocket 358.46 every month.

Is this a good investment? Sure it is according to my expectation, but maybe not for you.

I know some people cannot see just a little bit further than the so called cash flow, because they don't have a solid overall liquidity, solvency, credibility and safety. Since this is a negative cashflow, some people cannot handle it.

But for me, it's a big profitablity （$50k upfront profit, plus after 10 years, $ 726.81 profit every month for 20 years!

for liquidity, it cashed out $100k at the beginning, what else i need to expect more?

for solvency, I have huge cash in the bank for long term fixed expenses, my overall assets far exceed the liabilities. Besides, my equity accumulated is much faster (3 times faster) than the tenant(buyer)'s equity on the same property.

Well, this is just my experience, different people have different styles. You'd better develope your own.

I still remember Miat42's strategy is all about cashflow. If you use his stratedy, (according to his repeated requirement:) you have to put more downpayment to make your cash flow positive. This might work for you, but definitely not my style of investment. Because in his cases, the profitablity, liquidity and solvency are not good at all, and also if the market has any flucuations, the stress testing for his investment could fail. I am still wondering his investments he made during 2004-2007.

If using my method, all the risks are transfered to the buyer, and mitigated by difference in the interest rates... in one word, it's a quite safe and hedged investment.

所有跟帖： 

• 宝宝如何了？ -trendspike- ♂ (0 bytes) () 08/04/2010 postreply 07:33:12

• 回复：宝宝如何了？ -槑- ♀ (92 bytes) () 08/04/2010 postreply 07:37:25

• 虽然不懂操作，但读过后比较一下觉得你的办法的确要好很多。 -柳眉儿- ♀ (0 bytes) () 08/04/2010 postreply 07:40:22

• 回复：虽然不懂操作，但读过后比较一下觉得你的办法的确要好很多。 -槑- ♀ (494 bytes) () 08/04/2010 postreply 07:47:29

• haha, you always speak your mind. I like that my friend. -柳眉儿- ♀ (0 bytes) () 08/04/2010 postreply 07:59:52

• You forgot you have to pay off the 100k to the bank when -umstudent- ♂ (57 bytes) () 08/04/2010 postreply 08:02:34

• no worries! I've more equity than the tenant -槑- ♀ (140 bytes) () 08/04/2010 postreply 08:14:58

• 回复：My negative cashflow properties -blocked- ♂ (42 bytes) () 08/04/2010 postreply 08:16:06

• haha, thanks, but I've never heard of that guy -槑- ♀ (0 bytes) () 08/04/2010 postreply 08:24:06

• 回复：haha, thanks, but I've never heard of that guy -blocked- ♂ (58 bytes) () 08/04/2010 postreply 08:33:38

• what a deal for tenant ! -槑- ♀ (476 bytes) () 08/04/2010 postreply 08:44:38

• 回复：what a deal for tenant ! -blocked- ♂ (136 bytes) () 08/04/2010 postreply 08:50:21

• 0 sec to find the buyer -槑- ♀ (332 bytes) () 08/04/2010 postreply 09:03:09

• 回复：回复：what a deal for tenant ! -槑- ♀ (267 bytes) () 08/04/2010 postreply 09:11:49

• I thought you used to be a doctor (from 我爱我家) and -seabright123- ♀ (88 bytes) () 08/04/2010 postreply 10:38:39

• 回复：I thought you used to be a doctor (from 我爱我家) and -槑- ♀ (109 bytes) () 08/04/2010 postreply 11:28:19

• 能$50k 买入 $100k卖出，多做几个得了，不用搞那么复杂吧。 -钱管用- ♂ (0 bytes) () 08/04/2010 postreply 08:19:46

• no, it's difficult to sell at $100k bc poor bad credit ppl w/o d -槑- ♀ (0 bytes) () 08/04/2010 postreply 08:25:12

• how can you get 100k loan for 50k property? -win963852741- ♂ (304 bytes) () 08/04/2010 postreply 08:25:09

• tell u more astonishing truth, I just got 80k from 7k investment -槑- ♀ (128 bytes) () 08/04/2010 postreply 08:29:50

• is it "home equity loans" ? Thanks -win963852741- ♂ (0 bytes) () 08/04/2010 postreply 08:33:36

• 回复：is it "home equity loans" ? Thanks -槑- ♀ (38 bytes) () 08/04/2010 postreply 08:35:14

• What you said here doesn't work anymore. The banks are -UMstudent- ♂ (99 bytes) () 08/04/2010 postreply 08:40:16

• 回复：What you said here doesn't work anymore. The banks are -槑- ♀ (113 bytes) () 08/04/2010 postreply 08:47:18

• I guess the key for this to work is to find a property -Conehead- ♂ (127 bytes) () 08/04/2010 postreply 08:46:43

• 回复：I guess the key for this to work is to find a property -槑- ♀ (698 bytes) () 08/04/2010 postreply 08:54:27

• And get a 100k-loan. -planotx- ♂ (0 bytes) () 08/04/2010 postreply 08:54:35

• I remember JY101 has a case without any money down -planotx- ♂ (371 bytes) () 08/04/2010 postreply 09:01:42

• 回复：I remember JY101 has a case without any money down -槑- ♀ (704 bytes) () 08/04/2010 postreply 09:53:55

• 太冒险了？撑死胆大的，饿死胆小的？ -hao-hao-cai- ♂ (0 bytes) () 08/04/2010 postreply 08:52:03

• haha, i feel it's quite safe -槑- ♀ (0 bytes) () 08/04/2010 postreply 08:55:04

• I pay cash 100% for all my properties! -hao-hao-cai- ♂ (88 bytes) () 08/04/2010 postreply 09:04:17

• me 2 -槑- ♀ (70 bytes) () 08/04/2010 postreply 09:07:13

• now, it is time to go to bank take some money out to invest more -qiaoshe- ♀ (0 bytes) () 08/04/2010 postreply 13:10:36

• wow, buy 50k, borrow at 100k -jcm3346- ♀ (0 bytes) () 08/04/2010 postreply 09:54:03

• I wowed 2 when I first time did that. but now no surprise anymor -槑- ♀ (0 bytes) () 08/04/2010 postreply 10:02:19

• how long sh'd wait to cash out by marrket value? -jcm3346- ♀ (0 bytes) () 08/04/2010 postreply 11:15:21

• you are right, cash flow is just an overall operational concept -槑- ♀ (411 bytes) () 08/04/2010 postreply 10:36:36

• what if your buyer/tenant can't pay after two years? -bluevale- ♀ (35 bytes) () 08/04/2010 postreply 10:45:03

• 回复：what if your buyer/tenant can't pay after two years? -槑- ♀ (255 bytes) () 08/04/2010 postreply 11:15:43

• it's a smart idea but is it easy to proceed? -bluevale- ♀ (254 bytes) () 08/04/2010 postreply 14:15:16

• 好帖， 谢谢 呆的呆次方 美美 -比花花还花- ♂ (120 bytes) () 08/04/2010 postreply 11:07:36

• 回复：好帖， 谢谢 呆的呆次方 美美 -槑- ♀ (141 bytes) () 08/04/2010 postreply 11:19:50

• 看来两朵花花 妹妹心情大好！ -比花花还花- ♂ (167 bytes) () 08/04/2010 postreply 12:45:39

• Agree. there is another problem. Not all mortgage can -qiaoshe- ♀ (115 bytes) () 08/04/2010 postreply 12:08:18

• to be able to provide financing service to poor people -longtermInvestor- ♂ (350 bytes) () 08/04/2010 postreply 11:43:10

• u got it: cash or cash equivalents are the key -槑- ♀ (295 bytes) () 08/04/2010 postreply 11:52:46

• I believe the key for your success is to get house -longtermInvestor- ♂ (263 bytes) () 08/04/2010 postreply 11:58:12

• that's 2 different keys -槑- ♀ (244 bytes) () 08/04/2010 postreply 12:04:46

• stocks are risky, the reason is we small investors do -longtermInvestor- ♂ (472 bytes) () 08/04/2010 postreply 12:08:08

• Thank you for bringing up such a good point -- -IntoTheWild- ♂ (211 bytes) () 08/04/2010 postreply 21:17:27

• great, but i am curious, did you triple check the potential lega -smallking- ♂ (273 bytes) () 08/04/2010 postreply 12:10:06

• very good points -槑- ♀ (343 bytes) () 08/04/2010 postreply 12:18:09

• I don't consider this is a negtive cash follow. You -qiaoshe- ♀ (96 bytes) () 08/04/2010 postreply 12:11:43

• That's the exact words I told Cultuslake and Miat42!!! hahaha -槑- ♀ (748 bytes) () 08/04/2010 postreply 12:24:51

• but a very cleave way to invest in Real estate, thanks for share -qiaoshe- ♀ (0 bytes) () 08/04/2010 postreply 12:25:36

• I meant clever, haha -qiaoshe- ♀ (0 bytes) () 08/04/2010 postreply 12:42:36

• thanks for reading -槑- ♀ (882 bytes) () 08/04/2010 postreply 12:43:29

• 不太明白你的例子。让我们一起探讨。 -dahonghua- ♀ (468 bytes) () 08/04/2010 postreply 17:23:44

• 呆呆妹妹是个神人 -melody2010- ♀ (1053 bytes) () 08/04/2010 postreply 21:55:54

• 请教一个问题：房子还压在银行那里（10年期），怎样卖给你的房客？ -lkk1080- ♂ (16 bytes) () 08/04/2010 postreply 22:42:02

• I assume that the contract will indicate -ctimeagain- ♀ (338 bytes) () 08/05/2010 postreply 11:18:07