Lower the Price
Although intuitive, the first step toward reducing NCF is to negotiate a
lower price. Go back and forth several times if necessary. It will
benefit throughout the entire ownership period.
Set Up A Cash Reserve
When structuring the purchase, if there will be an unavoidable NCF,
set up a cash reserve for the period that cash flow is projected to be
negative. It could be a cash account, or a tax refund, or a note payoff,
pending inheritance, whatever. But get it done!
Offsets
Another approach is to designate a specific note or specific
property in the portfolio that has a sufficient positive cash
flow to serve as an “offset” to the NCF. But be sure to tie
the two together. Don’t just say, “The portfolio can cover it.”
Often, that kind of “loose thinking” can get an investor
overextended as more properties are acquired.
Recruit Partners
Usually, an effective way to handle NCF is through the use of a
partner. There are several kinds of these. An investor/partner
could be brought in with a Limited Partnership (LP), or a Tenancy
inCommon (TIC). Or, in some instances, it is possible to partner
Dealing With
Negative
Cash Flow
with the seller using a LeaseOption or a SharedAppreciation
Mortgage (SAM). It is also possible to partner with a tenant using a
LeaseOption (“RenttoOwn”) or EquitySharing. These all work
well under the right circumstances.