Why look for properties with NEGATIVE cash flow

Cash flow, cash flow, cash flow! That's what everyone talks about, right?

But as with most things in life, if everyone is doing it, it's likely not the right move.

Here is why I look for properties with NEGATIVE cash flow:

1. Wrong Focus - most investors look for positive cash flow because that's simply what people tell them to do. Of course, more revenue is better than less but what about other important factors such as appreciation, principal pay down of the mortgage and opportunities for increased value via such things as renovations or change of use? Cash flow only entails one aspect of real estate profit. This is the EXACT reason why I think cap rates are complete bullshit - they are misleading and do not come close to telling the whole picture.

2. Supply and Demand - if everyone is looking at the properties with the best cash flow, the demand will then jack up the prices of these properties. I have zero interest in investing in properties sold at auctions. On the flip side, negative cash flow properties (despite how much potential they may have), often get overlooked and I can swoop in to take advantage.

3. Hidden Opportunities - properties with negative cash flow sometimes can be converted to positive cash flow with simple tweaks. Perhaps the tenants have been there forever and once vacated, prices can be increased to market standards. What if rents are down because the property needs upkeep or upgrades? Simple paint or a new bathroom can jack up rents. What if the property can be converted to say, condominiums, as is the case with the 12-plex I bought in February. That particular property yielded a $500.00 negative cash flow per month but will still equate to a massive profit.

Simple points are these:

1. If everyone is doing it, it's likely the wrong move.

2. Always look for hidden opportunities.

3. Look at the entire picture, not just one corner of the painting.