Negative cash flow IS your friend. Nobody expects you to take such a contrary statement on faith so let’s look at an example from a Empowered Investor Network (PPIN) seminar to illustrate the point more clearly.
Get ready to wrap your brain particles around the idea that negative cash flow in an income investment property is not a bad thing. It’s actually a very good thing. Wait! Don’t click away.
Let’s say you and a friend are going to buy identical $140,000 income investment properties. Your friend has never been exposed to the revolutionary leverage techniques taught at PPIN and ponies up a 20% down payment ($28,000) for his property, while you, cagey devil that you are, manage to only put a 5% down payment toward your purchase ($7,000).
To the untrained eye, it looks like your friend is better off. He only has a -$28 monthly cash flow, while yours sits at -$220. This is where most people stop in their deal analysis. Larger negative cash flow is bad, right?
Wrong. Think about it like this. Your friend put down an additional $21,000 for his purchase. The difference in negative cash flows between the two properties is $192 dollars. Divide the $21,000 by $192 and you get 109 months. That’s more than 9 years before he breaks even with you, even taking into account your larger negative monthly cash flow. Plus he’s risking more of his money in the deal while you’re taking the $21,000 and using it in more deals to create even more wealth.
Learn to love negative cash flow. We do. As long as you don’t have such a large negative cash flow from multiple properties that it adversely effects your financial lifestyle, you’re good to go.
