Cash flow or appreciation?

Member since 2022 · 6 posts · 1 vote

Hi all, I've been saving up to buy an apartment in NYC where I live and work, but have decided to put the money to better use to invest in rental properties out of state. Complete newbie in real estate investing, and since I have a full time job, my thinking is to get started with a relatively inexpensive turnkey property (~$100k, 20% down) and see how I can scale from there.

My goal is to accumulate capital so I have more money to invest in more properties in the coming years, how should I think about wanting cash flow vs. appreciation? Ideally, I'd want both, but often one can't have it all, so which is a more effective way for scaling? I think this would help me narrow down the specific markets, and research turnkey providers in those areas.

Appreciate all your thoughts and recommendations!

ZW.

0 Reply

100 views

Most Popular Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

There is never a choice between the two. If there is, then your choice is between losing money, and losing money.

6 Reply

See this reply in the discussion

48 Replies

Jump to latestLatest

Sort by

Taylor L.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
3y
First one, then the other. Specifically, first cash flow then appreciation. Cash flow is what sets us free!
On the topic of turnkey - you still need to do due diligence and run your own numbers. Just because the turnkey provider says it's a great property, it'll cash flow, etc, doesn't mean it will. There have been a number of helpful guides to turnkey due diligence written over the years, see if you can hunt a few of those down.
3 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
There is never a choice between the two. If there is, then your choice is between losing money, and losing money.
6 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
@Zhenchen W.
Research BRRRR or Hack
A. You pay $1,500 per month in NYC. Change the number as needed.
B. For that payment you get no income or appreciation. Can’t deduct it against your income.
C. How much does a 2/1 or 2/2 rent for there. Of the same quality your living in.
D. Any gentrification sections of town you can BRRRR?
E. Try the impossible. Figure out how to not pay rent.
Learn all of the angles to REI. It's fun.
0 Reply
Zhenchen W.
OP
Member since 2022 · 6 posts · 1 vote
3y
Quote from @Taylor L.:

First one, then the other. Specifically, first cash flow then appreciation. Cash flow is what sets us free!
On the topic of turnkey - you still need to do due diligence and run your own numbers. Just because the turnkey provider says it's a great property, it'll cash flow, etc, doesn't mean it will. There have been a number of helpful guides to turnkey due diligence written over the years, see if you can hunt a few of those down.

Yes, absolutely, doing due diligence and running my own numbers is key no matter what. Any guides in particular that you've found helpful and would recommend? Thanks for your response!
0 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Henry Clark:

@Zhenchen W.
Research BRRRR or Hack
A. You pay $1,500 per month in NYC. Change the number as needed.
B. For that payment you get no income or appreciation. Can’t deduct it against your income.
C. How much does a 2/1 or 2/2 rent for there. Of the same quality your living in.
D. Any gentrification sections of town you can BRRRR?
E. Try the impossible. Figure out how to not pay rent.
Learn all of the angles to REI. It's fun.II agreei

I agree with this. I say this as someone who lives and invests in NYC. It's always most efficient to invest in the market you live in. And though there are people here who seem to go for turnkey properties, that seems the most risky to me. You've added no value, created no equity. You're just hoping for market timing really. Just my opinion.
2 Reply
Zhenchen W.
OP
Member since 2022 · 6 posts · 1 vote
3y
Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!
0 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Zhenchen W.:

Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!
Equity. And if your first domino is an appreciation-focused house with cash flow(don't buy OTM), by the laws of it the more time you hold it the more equity you have and therefore have capitalized on the appreciation. Can cash out re-fi, and pursue another property. Versus small dividends from strictly cash flow, low appreciation properties that give you bit by bit. A simple capex or tenant turn can wipe you clean.

This really depends on your goal and your finances. I'm strictly speaking from a logic standpoint, unless someone can show me how that would be wrong. I'm a new investor myself, and that will be my pursuit. Going for appreciation-focused areas first, as those would have more time to mature. They likely will require more capital, too. So I'd likely go 1-3 appreciation properties at first, hold, re-assess. Either I have more cash to dab into property #4, I won't and can cash out re-fi these higher appreciating houses to allocate capital for property #4, or I am done at 3.
0 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Cash flow is real, appreciation is a myth. Shoot for numbers that work RIGHT NOW. I have read too many posts of people who bought too high and can't sell anymore because they thought their property was going to appreciate
6 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Eliott Elias:

Cash flow is real, appreciation is a myth. Shoot for numbers that work RIGHT NOW. I have read too many posts of people who bought too high and can't sell anymore because they thought their property was going to appreciate

Yeah. Question should be rephrased as cash flow vs. equity. I don't know any investor who banks on or factors appreciation into his or her numbers. But at the end of the day we're all trying to acquire equity bc equity can always be converted into cash flow. Lots of investments throw off cash. The beauty of real estate is wealth creation.
2 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Zhenchen W.:

Hi all, I've been saving up to buy an apartment in NYC where I live and work, but have decided to put the money to better use to invest in rental properties out of state. Complete newbie in real estate investing, and since I have a full time job, my thinking is to get started with a relatively inexpensive turnkey property (~$100k, 20% down) and see how I can scale from there.
My goal is to accumulate capital so I have more money to invest in more properties in the coming years, how should I think about wanting cash flow vs. appreciation? Ideally, I'd want both, but often one can't have it all, so which is a more effective way for scaling? I think this would help me narrow down the specific markets, and research turnkey providers in those areas.
Appreciate all your thoughts and recommendations!
ZW.

Smart looking out of state , there are 10% net caps to be had in the Midwest. All you need to do is connect with those that provide rental properties, and allow them to handle all for you
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Zhenchen W.:

Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!

Simple buy one for about 100k, refi cash out, buy another refi cash out, repeat,
0 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Bob S.:

Quote from @Zhenchen W.:

Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!

Simple buy one for about 100k, refi cash out, buy another refi cash out, repeat,

How do you do this if you buy turnkey though? You've created no equity to cash out.
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Jon A.:

Quote from @Bob S.:

Quote from @Zhenchen W.:

Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!

Simple buy one for about 100k, refi cash out, buy another refi cash out, repeat,

How do you do this if you buy turnkey though? You've created no equity to cash out.

Not true, you need a team in place, I just picked up a 3/2 Euclid OH all in 60kish, value 125kish, rent will be about 1300- 1400,,,,,, 100% hands off.
0 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Bob S.:

Quote from @Jon A.:

Quote from @Bob S.:

Quote from @Zhenchen W.:

Quote from @V.G Jason:

It's the long-living debate, I'll always take appreciation. How you get cash from that is different than cash flow, but likely greater.
If you mean more money to invest, do you mean month to month specific or do you mean just in aggregate? That's how it'll differ. I'm not a fan of month to month payments, it's the worst trick in the world. That's my personal opinion.

I meant in aggregate, what would help me scale from 1 to 2 to 5 properties in a reasonable amount of time. Maybe the answer depends on what "a reasonable amount of time" is, I honestly don't have a good gauge at this point, that's why I'm here to learn. Thanks for your response!

Simple buy one for about 100k, refi cash out, buy another refi cash out, repeat,

How do you do this if you buy turnkey though? You've created no equity to cash out.

Not true, you need a team in place, I just picked up a 3/2 Euclid OH all in 60kish, value 125kish, rent will be about 1300- 1400,,,,,, 100% hands off.
I don't operate in your market to know the conditions. But why would someone sell a house in turnkey condition at more than a 50% discount? Why not sell to an owner occupant at market? Are these highly distressed foreclosures or something?
1 Reply
Gaudys Rivas
MIAMI LAKES, FL · Member since 2014 · 41 posts · 18 votes
3y
Most of the times there is no equity in turnkey properties, so you won't be able to Brrrr.. look for properties that you can add value ... my two cents
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Zhenchen W.:

Hi all, I've been saving up to buy an apartment in NYC where I live and work, but have decided to put the money to better use to invest in rental properties out of state. Complete newbie in real estate investing, and since I have a full time job, my thinking is to get started with a relatively inexpensive turnkey property (~$100k, 20% down) and see how I can scale from there.
My goal is to accumulate capital so I have more money to invest in more properties in the coming years, how should I think about wanting cash flow vs. appreciation? Ideally, I'd want both, but often one can't have it all, so which is a more effective way for scaling? I think this would help me narrow down the specific markets, and research turnkey providers in those areas.
Appreciate all your thoughts and recommendations!
ZW.

So we're in the environment of high inflation/high interest rate which means real estate investment is bit riskier until the interest rate and cap rate is normalized. The effect of that is the growth for real estate appreciation is guaranteed for sure would be lower than 2010-2020 era. That era is gone. So since we can't expect much appreciation like previous decade , what we can only control is the cash flow. We can make cash flow by reducing the financing cost.
1 Reply
Mohammed Rahman
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
3y
Hey @Zhenchen W. - ultimately depends on what you want to prioritize, but you can have both in a lot of markets that are similarly priced to what you're looking for. Will the appreciation be killer? Probably not.
For example, in NYC you can't expect to cashflow reasonably except in rare instances, it's mainly an appreciation game. In MidWest Town, USA, you might have strong cashflow but a very slow appreciation rate.
What I'm trying to say is that it's not black and white, keep an open mind and good luck!
1 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
@Zhenchen W.
-pick a market you can drive to - something 1-4 hours away
-drive frequently to that market
-go to REIA meetings, meet investors, meet agents, meet PMs, talk to other humans, visit many properties
-build your team
-buy property in that market
1 Reply
Damon Bodine
Real Estate Agent · New York City · Member since 2014 · 359 posts · 195 votes
3y
Quote from @Zhenchen W.:

Hi all, I've been saving up to buy an apartment in NYC where I live and work, but have decided to put the money to better use to invest in rental properties out of state. Complete newbie in real estate investing, and since I have a full time job, my thinking is to get started with a relatively inexpensive turnkey property (~$100k, 20% down) and see how I can scale from there.
My goal is to accumulate capital so I have more money to invest in more properties in the coming years, how should I think about wanting cash flow vs. appreciation? Ideally, I'd want both, but often one can't have it all, so which is a more effective way for scaling? I think this would help me narrow down the specific markets, and research turnkey providers in those areas.
Appreciate all your thoughts and recommendations!
ZW.

Some considerations as to why you may not want to completely dismiss buying personal residence first.
#1 consider equity growth in your approach. You're not cash flowing per say on your primary residence but you are paying down debt as opposed to paying rent. Obviously there are phantom costs in home ownership but I would still recommending run some amortization calculators to see how your longer run debt paydown looks over a 5-7 year period even at todays rates.
#2. If you do buy investment property first you may lose access to some (not all) potential first time home buyer benefits. This becomes more of an issue when you're looking at community bank/credit unions /portfolio / census tract based loans. Not your conventional/fha stuff.
#3. Be weary of abnormally high cash flow markets. I personally learned this the hard way not budgeting enough for repairs, tenant damage, etc. Fortunately I got bailed out by appreciation but thats never a guarantee.
#4 As others have said appreciation is never guaranteed. There are so many things that can disrupt the growth of a market. Macro and micro effects.
#5 Remember the current mortgage interest rate environment may be temporary. The fed themselves release a summary of economic projections which gives insights into the target fed funds rate. This has a significant impact on the cost of credit everywhere. Theoretically if the projections are true we could see refinancing opportunities in the future.
#6. If you plan to be in nyc for the long haul there is a reasonable argument that you'll plan down a lot of debt if you do decide to invest here in a primary residence locally.

If you ever want to brainstorm always happy to chat.
0 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
Quote from @Joe Villeneuve:

There is never a choice between the two. If there is, then your choice is between losing money, and losing money.

Exactly. Buy cash-flowing assets below market value for both cashflow and appreciation.

Get your 'appreciation ' in the form of equity capture at the buy.

Turn-key, PMCs, working on your business vs in it blah blah are for capital preservation stage investors, not growth and expansion ones.

5 Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
3y
Cash flow must meet a minimum threshold. As in, cash flow must be positive even in a conservative growth environment. After that threshold is met, I will then look for the market with the best long-term (10+ year) prospects for appreciation and rent growth.
I will not invest for appreciation in such a manner as to have negative cash flow for any prolonged period of time, however.
I'd rather take a small amount of positive cash flow in a market with great long-term prospects than more cash flow in a market with poor long-term prospects.
Podcast Guest on Show #223
5 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
this is very true always in general......and then that positive cash-flow is counted after on top of "repair fee" projection.
0 Reply
Zhenchen W.
OP
Member since 2022 · 6 posts · 1 vote
3y
Quote from @Scott Trench:

Cash flow must meet a minimum threshold. As in, cash flow must be positive even in a conservative growth environment. After that threshold is met, I will then look for the market with the best long-term (10+ year) prospects for appreciation and rent growth.
I will not invest for appreciation in such a manner as to have negative cash flow for any prolonged period of time, however.
I'd rather take a small amount of positive cash flow in a market with great long-term prospects than more cash flow in a market with poor long-term prospects.

Good perspective, thanks!
0 Reply
Zhenchen W.
OP
Member since 2022 · 6 posts · 1 vote
3y
Quote from @Damon Bodine:

Quote from @Zhenchen W.:

Hi all, I've been saving up to buy an apartment in NYC where I live and work, but have decided to put the money to better use to invest in rental properties out of state. Complete newbie in real estate investing, and since I have a full time job, my thinking is to get started with a relatively inexpensive turnkey property (~$100k, 20% down) and see how I can scale from there.
My goal is to accumulate capital so I have more money to invest in more properties in the coming years, how should I think about wanting cash flow vs. appreciation? Ideally, I'd want both, but often one can't have it all, so which is a more effective way for scaling? I think this would help me narrow down the specific markets, and research turnkey providers in those areas.
Appreciate all your thoughts and recommendations!
ZW.

Some considerations as to why you may not want to completely dismiss buying personal residence first.
#1 consider equity growth in your approach. You're not cash flowing per say on your primary residence but you are paying down debt as opposed to paying rent. Obviously there are phantom costs in home ownership but I would still recommending run some amortization calculators to see how your longer run debt paydown looks over a 5-7 year period even at todays rates.
#2. If you do buy investment property first you may lose access to some (not all) potential first time home buyer benefits. This becomes more of an issue when you're looking at community bank/credit unions /portfolio / census tract based loans. Not your conventional/fha stuff.
#3. Be weary of abnormally high cash flow markets. I personally learned this the hard way not budgeting enough for repairs, tenant damage, etc. Fortunately I got bailed out by appreciation but thats never a guarantee.
#4 As others have said appreciation is never guaranteed. There are so many things that can disrupt the growth of a market. Macro and micro effects.
#5 Remember the current mortgage interest rate environment may be temporary. The fed themselves release a summary of economic projections which gives insights into the target fed funds rate. This has a significant impact on the cost of credit everywhere. Theoretically if the projections are true we could see refinancing opportunities in the future.
#6. If you plan to be in nyc for the long haul there is a reasonable argument that you'll plan down a lot of debt if you do decide to invest here in a primary residence locally.

If you ever want to brainstorm always happy to chat.

Thanks for sharing your thoughts, Damon. I don't rule out the possibility of buying in NYC eventually, but feel that money could go a lot further in other places. Happy to chat more, will reach out in DM!
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.