The Blogging Community Really Exists
Sometimes it feels as though you are all alone trying to get a few audience members to look at your blog.
On his blog, Dave put his cards on the table about having a vacant property, including a negative cash flow.
Dave and I run different blogs, neither focused on real estate investment.
But when I saw he was going through the same experience I’d had, I was able to offer some advice.
Hang on, tighten your belt, property appreciates in the long run.
You didn’t ask, but here’s the backstory.
I had property I was renting during a time of dropping values. It had an annoying negative cash flow. I ate the loss every month.
One evening at a local watering hole, I ran into a couple of real estate professionals.
Not quite crying in my beer, I was bemoaning the lost cash every month.
“What would you do with that extra cash?” one asked. Had to admit, I wasn’t starving.
He looked me right in the eye and said, “You hang onto that place. It’s going to go up in value, and you are paying off a piece of it every month.”
Well, that advice put steel in my bustle.
I accepted the idea that I was paying a little extra every month for a shot at long-term value. Real estate is leveraged, which means on a $200 K property, you have a few thousand of your own money invested betting it will increase in value. You pay off a little chunk every month, get a tax break, expense all expenses, learn a little.
House prices have risen. Historically, they dip, correct, balloon, crash, level off, and continue rising.
Even with negative cash flow, your tenants are paying most of the interest, and maybe a piece of the principle.
Time passes. In my case it was more that a decade!
Had a few hassles with tenants, some repair costs, some vacancies. But rents and prices did rise again.
I used the increase in equity to get a bigger rental property. I sold my property plowed my hard-won equity into a bigger rental property using a tax-free 1031 exchange.
I made back all my monthly negative cash flow, and more, although not in the form of cash.
It worked out.
So my comment to Dave was pretty simple: I did it, you can, too.
The negative cash flow stings but it’s a glass that’s just about full. It’s the price of a kind of lottery ticket that tends to pay off more often than not.
Time is on your side.
It can be a psychological boost to be told, “You’re not losing, you’re winning slowly.”
I’ve had many occasions to thank that real estate pro, whose name is long forgotten.
But he gave me the confidence to see into the future and stop bellyaching over a little negative cash flow.
Hey, if you read this far you might want to read some books on real estate investing.