Appreciation play v.s. cash flow

19 Replies

Hi! My husband and I recently moved to Frisco, Texas (a very high appreciation area - 9%) for our jobs. Our goals has always been to buy a duplex and house hack it; however, we have been looking on the market for over a year and we have not found any duplexes we can afford. Our goal is to allow one of us to quit our full-time job. Additionally, we are currently renting and our rent will climb from $1,500 to $1,900 if we do not move into a house by September. We are easily able to break our lease for a months rent. Since our plan is not working out, we are looking for some guidance. Do we switch to buying single family to get out of rent and gain the appreciation or buy a cash flowing duplex (+$300) in our hometown in the midwest and stay renting?


Thanks so much in advance for your help! :) 

@Amanda Polton, I'm not in your market, but please give an example of what you are finding with duplexes that you feel you can't afford, versus what you were hoping to find.  How much would the sale prices be and what would the rent on a unit be like?

Also, did you think you could quit your full-time job with just one house-hack? That doesn't sound too reasonable. 

You can go to the planning dept. and find out if they will allow an ADU (Auxiliary Dwelling Unit) on a single family property? Most cities and counties allow this in this time of lack of inventory. If so, buy a house with enough space to put on on the property. You get the main house and rent out the ADU. You can build it ground up, or convert a garage, or a basement or an attic.

This might help you see that you may not have to buy a duplex right from the start? You can also look into building a 2-4 unit on land that you purchase. At that point you control the costs, style, layout. Its a longer trek, but you will be happier and have a  valuable property in the end. 

I hope this helps? 

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@Amanda Polton

Hi. I think you might be the 3rd person posting about Duplex’s and multi family in Frisco in the last 30 day.

Short answer. There are no cash flowing duplexes in Frisco. Inventory is tiny for a city this size. Ones that are built are too costly to cash flow. Appreciation might be a play if you can get one. But get in line. Any that do come up are bought cash by very experienced investors. Investing in Frisco is very tricky Period. As you have seen prices are at 9% makes junkers over priced for investing proposes. Betting on an increasing market to make it work is just gambling.

I don’t know your previous location so can’t make a comparison. If you want pointers in Dallas where there are possibilities for investment let me know. I can help with that. But Frisco for a newbie is out for so many reason. Unless of course you’re high risk.

Agree with @Nick Brown. I moved from the midwest to DFW in Dec, 2020 with the same plan...to house hack. Unfortunately, nothing can cash flow with the rapid rise in prices. Rents lagged a bit and just barely starting to catch up from what I've seen starting around August, 2021, but no where near enough. Any B class duplex is maybe $450k+ so unless you are comfortable living in rougher areas it's not worth it. I changed strategies and started buying single families and they have similar returns (-$150 to $-300 per month when figuring PM, vacancy, repair, cap ex) but have the added benefit of being sellable to anyone, unlike a 2-4 unit. There is risk of course with negative average cash flow but appreciation in DFW has been consistent for years.

I bought a 4 bedroom single family and am renting the rooms out, it might be something to consider as it's house hacking while being more affordable up front. Just one room will go for $600-$900, maybe higher in Frisco, so not bad.

@Amanda Polton I have had several clients in the same situation as you give up the dream of hacking a multifamily in the DFW area. They are way over priced. Plus you will get out bid by cash investors by a substantial margin. Therefore, I recommend you forgo the multifamily search and focus on a SFR. I would recommend a 3/2/2 with no pool. Once your ready to purchase another property this will make a great rental. I did a quick search of 3/2/2 no pool in Frisco in MLS. There were 17 active listings ranging from $374,900 to $704,400. In my opinion, I would recommend you look to other areas to acquire a SFR. Look north of Frisco in Anna, Melisa, Princeton, etc. The growth is great in these areas and you can still acquire a 3/2/2 for much less and the appreciation will be good. Good luck in your search.

I agree with Nick. We live in Frisco but invest in other markets that are more affordable and provide cash flow opportunities. I’ve literally seen 1 duplex in Frisco come up for sale in the last 2 years and I believe it was 450K. I did the math and the numbers were tighter than I was comfortable with. 

Most of my net worth is appreciation. Nearly $1M in appreciation in 4.5 years. DFW is hot and I still see it climbing even more... a majority of my clients are purchasing with the assumption that cash flow is minimal and appreciation will continue to happen. But also in your situation - if you're paying $1,900/mo in rent? Hard to see how purchasing ANYTHING could be worse. lol

Get out of the rent race and buy a single family.  Cash flow of course depends on what you put down, but if you are thinking minimal down, cash flow will be tough to impossible in todays market.  You may be able to work into it though.  Rents as you say are going up fast, so breakeven today might cash flow $200/month next year and $400/month year two.   That's rolling the dice though...we can't promise that and it hasn't always been this way.  At some point rents will probably catch up with income growth and the rent increases will slow back to more stabilized rates.

Every time someone mentions Texas I think about all the people from California moving to Texas and it won't be long until Texas lawmakers start thinking like California's lawmakers. Then, where will the herd migrate to?

I go strictly for appreciation and the rents barely pay the bills and keep up with inflation. It is the appreciation that gives you the tens of thousands (or millions) of dollars you can upgrade to more-profitable properties and rental income will hardly ever (or never) cover the real estate commissions.

@Amanda Polton, Amanda you've had several individuals provide very insightful responses to your question. Can you please respond back to us and let us know what you're thinking? Are you going to continue to consider single-family homes even if it means that you were going to have negative cash flow? Will you pursue an ADU, another form of house hacking, to create positive cash flow? Thanks.

@Amanda Polton I'm in the same boat. Was looking for a multifamily to househack for the higher cashflow, but changed my strategy to single family since the closest cashflowing multifamilys were hours away from the high paying jobs and I didn't think it was worth it. SFRs are generally safer from what I've learned too because you are attracting more higher quality tenets. 

I would buy a home if I were you instead of renting. Rates are at an all time low and inlfation is high. Getting less than 3% interest on a 30 year fixed loan is such a huge asset. The CPI would be 15% if they calculated it the way they did in the 80's, so with a 3% mortgage you are essentially getting a 12% return on the debt, meaning you're paying back the mortgage with cheaper inflated dollars every year. In inflationary times you don't want to be paying rent prices, you want to be a price maker.

You could buy a distressed home, fix it up while living in it, and then rent it out and get another one. Since you'd be forcing appreciation you can get good cashflow if you buy right. 

Or if you don't mind having roomates, get a house with a lot of rooms. I'm renting my spare room out for $500/month, super easy.

Whatever you want to do post your number, first, lets have a look and don't forget that a huge chunk of your mortgage payment is applied to the principal and this makes a huge difference when crunching your numbers.

But...I still try to stay away from single-family homes when the home will not appreciate in value, substantially, but as a previous BP member posted, you still may be better off buying than renting if that is your only choice and cannot buy an investment property that generates a profit almost exponentially compared to a single family home for your personal residence.

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I'm in the DFW too and I would buy a SFH to live in for a year with only 5% down. Then rent it out after a year and buy another SFH. Forget the duplex dream. The only ones affordable or that cash flow are in bad areas. You don't want to house hack and live in one of those. RE investing is a get rich slow process. But it will make you very wealthy if you have a little patience.

Hi @Amanda Polton, I just moved from Frisco. While there, I had the same mindset looking for a duplex so I could house hack. the problem is that there are no duplexes to buy in Frisco. With that said, I may be ridiculed here on BP, but I am not a fan of the appreciation play. I lived in Tucson from 2007-2016, I have seen appreciation evaporate. I would look for a cash flowing option and built off of positive cash flow. Best of luck in Frisco, it is a great place to live. 

Originally posted by @Joey Glavan:

@Amanda Polton I'm in the same boat. Was looking for a multifamily to househack for the higher cashflow, but changed my strategy to single family since the closest cashflowing multifamilys were hours away from the high paying jobs and I didn't think it was worth it. SFRs are generally safer from what I've learned too because you are attracting more higher quality tenets. 

I would buy a home if I were you instead of renting. Rates are at an all time low and inlfation is high. Getting less than 3% interest on a 30 year fixed loan is such a huge asset. The CPI would be 15% if they calculated it the way they did in the 80's, so with a 3% mortgage you are essentially getting a 12% return on the debt, meaning you're paying back the mortgage with cheaper inflated dollars every year. In inflationary times you don't want to be paying rent prices, you want to be a price maker.

You could buy a distressed home, fix it up while living in it, and then rent it out and get another one. Since you'd be forcing appreciation you can get good cashflow if you buy right. 

Or if you don't mind having roomates, get a house with a lot of rooms. I'm renting my spare room out for $500/month, super easy.

 That is definitely not true about single-family tenants being a higher quality. Would you rather have tenants destroy just the inside of a 800 to 1000 sq ft single-story rental unit, or have tenants destroy both the inside, outside, garage and the entire yard for a single-family house. When a multi-unit tenant moves we have the unit painted, cleaned and a new tenant in the units for as little as 3 days for a cost that never exceeds $1,000 to $1500 for a bad case. The very minimum cost to clean a single-family home, install carpets, etc. is never less than $6,000 and always requires 1 to 4 weeks plus the cleaning of fixtures, etc. is many times more than apartments.

I am going to admit that I am usually 100% against investing in single-family homes, but I've been looking for multi-units for several years and the numbers for single family homes is places like Ohio are starting to look better, but I am not sure, yet. One problem I think I see with Ohio is it looks like property taxes in some areas are 4 times higher than California. I am not sure!

Just moved to the eastern side of the DFW Metroplex in Princeton. It's a city that is definitely growing. Right now the hard part is waiting for it all to be built. I'm looking for a job, but there's not much here in Princeton and I spend a ton of my time in McKinney, Allen, Frisco, Plano. Although I don't have a suggestion on the duplex maybe we could meet up for coffee sometime? I have a goal of buying some short term rentals in the DFW metroplex. Currently my only investments are out of state in KY. Best of luck on your decision and Welcome to Texas!

@Amanda Polton

You should find a good investor friendly agent, modify your criteria, or start sourcing deals yourself for a duplex that makes sense for you. There is always a way to invest in every market, you just need to invest the time in. I would double down on your local market and expand your search for single family homes with carriage houses.