What to Do with a Negative Cash Flow Property

Tam-Bay Commercial Realty, Tampa FL Commercial Real Estate Broker

Choosing the best course of action is hard, especially when trying to manage real estate. After all, it can be tempting to just hang onto a property, even if it’s starting to hurt your finances. Still, this mostly stems from a lack of knowledge of what options you have. So, let’s discuss what to do with a negative cash flow property!

When is property classified as negative cash flow?

Before we get into what to do with a negative cash flow property, we first need to define one. And the answer is not completely straightforward, even if it technically applies to every property that is currently costing you more money to maintain than it brings in. However, this applies to a range of situations where that’s not necessarily a bad thing. For example, if you decide to close down a property and renovate it for a couple of months or even months, it becomes a negative cash flow property. But this is just temporary, and you are reasonably certain things will turn around once you rent it out again. As such, the only properties that qualify as true negative cash flow properties are those failing to generate a profit despite your attempts to make them profitable.

A run down commerciall property

Some properties are not worth trying to save them.

Readjusting your maintenance and renovation spending

If you are stuck wondering what to do with a negative cash flow property, your monthly maintenance fees might be to blame. It is all well and good to want your property to be in good condition. However, you need to toe a fine line when maximizing ROI on your real estate. If you put too much money into maintenance, you’ll always be at a loss. Similarly, there is a point past which renovations only offer a marginal increase to the property’s value and, therefore, how much rent you can charge for it. Any attempt to boost its value past that is typically a waste of money. For example, a lot of people are willing to pay extra for a pool. However, how many people are willing to pay more for a safety fence around said pool? Few, if any, so putting it in wastes your resources.

A nicely furnished home

Focus on interior design rather than home renovation to boost value.

Renting out separate rooms

A very nice way to improve your property’s cash flow is by renting out separate rooms instead of the property as a whole. This admittedly works best if the property is near a university, high school, or a work hub where lots of people look for accommodations. Similarly, you should only consider this if the property is large enough to make people hesitate to rent it out as a whole. After all, if you are just waiting for that perfect large family to come across, you are simply letting it languish and generate negative cash flow. Separating it into pieces makes it more appealing to less well-off renters, and you can slightly increase the rent value for the whole building by breaking it up between them.

A For Rent sign

Change how you rent if the current one isn’t working!

Getting more value out of your property

At the same time, if you do decide to follow our previous advice, you should consider gearing your property more toward this type of cohabitation. In other words, instead of leaving large rooms up as a common room or communal activity area, you can have them remodeled into individual rooms as well. This way, you get more rooms to rent out to people, and it won’t impact the value of your property much because people are typically not too keen on spending time in shared areas with people they don’t know anyway. Of course, you can also consider turning those rooms into additional storage spaces, which you can offer for a small fee to your tenants or some similar amenities.


Gearing your property towards short-term renting

If you are in an area where it is a viable option, such as a city popular among tourists, you also have the option to switch to short-term renting. In other words, make a rental that appeals to people looking for a place to stay for a day or two or maybe even a few weeks. The nice thing about this is that you can focus on luxury and maximize your ROI instead of having to tone down your rent prices to attract long-term interest. The only thing you need to do is advertise the property well, and it should start generating a profit quickly. You might, however, want to get professional assistance with your commercial rental if you’re not sure how to do this.


Renting out specific amenities to cope with negative cash flow

An odd but possible path forward is renting out specific amenities on your rental property, too. Either temporarily or on a more permanent basis. An example of this would be to rent out parking spaces separately. Or even storage space within the rental if it’s properly separated. Of course, the storage experts from Orange Mover note that you might have to remodel and even add climate control if you want to make rental storage appealing enough.


Should you consider selling?

The final answer to “What to do with a negative cash flow property?” when all else fails is, of course, to sell it. Sometimes, it can be a struggle to maintain the value of your property. It can seem like a constant drain on your resources and time, but trying to find a buyer looks daunting. But it is always a better idea to try something rather than just let a property waste even more of your money! It is perfectly possible you’ll even turn a profit since a little renovation frequently lets you sell for more money than you initially spent on the property. Of course, if it’s hard to find a buyer, you don’t even have to sell outright! You can always approach your current tenant and offer them a rent-to-own agreement.


Handling your negative cash flow property

Knowing what to do with a negative cash flow property gives you options. Whether you decide to try one of the tricks we discussed or just sell, at least your decision will be based on solid info and planning!




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Adam Brubaker