Negative Cash Flow is Poison. Stop Buying It!

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The word “investment” is defined as follows:

The action or process of investing money for profit or material result.

The very definition of the word implies profit, which is why it always boggles my mind when I hear people tell me that they “invested” in real estate that does not cash flow. This is especially common in high demand, coastal cities such as Miami, New York & San Francisco. I once had someone explain to me that he had purchased a single family home where the monthly mortgage payment was higher than the monthly rent, however the idea was that eventually the property would be paid off and he could retire on the rent. The purpose of investing in real estate is to make money, not lose it. A property that negatively cash flows is not an investment, it’s a liability, and investors should avoid these types of deals like the plague.

Yes, I agree, the economy has improved, but we are still on the tail end of a major economic downturn which was fundamentally triggered by over-leverage. The last thing we want is to take society down that road again. Purchasing a property with negative cash flow with the “hope” that it will either appreciate or be paid off to provide “future cash flows” is not an investment, it is a gamble, and purchasing property in this way is harmful to both yourself and the industry in general. It is irresponsible and can only have negative consequences.

The bottom line is that negative cash flow is poison. Sound investment strategies will focus on maximizing cash flows in the short term, with appreciation and future profits being the icing on the cake. There are plenty of investment properties out there that actually cash flow and there is no reason why anyone should be investing in anything that does not put money in their pockets on a monthly basis.