Appreciation or Cash Flow Focus When Starting Out

Los Angeles County, California
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Appreciation or Cash Flow Focus When Starting Out

Nick Henry
Member since 2021 · 19 posts · 12 votes

Hi there - I am starting out in real estate investing and am trying to build a portfolio of rentals that can produce enough cash flow for me to eventually leave my job and make real estate my main job. I have been going back and forth between an appreciation focused investment versus a cash flow focused investment. I'm unsure which focus would help me scale my portfolio and achieve my goals more efficiently. 

In the long run, I want to have properties that are producing strong cash flow (eventually would love to own small apartment buildings and syndicate larger deals), but it seems that focusing on cash flow and reinvesting those cash flows will be a slower process than focusing on properties prime for appreciation or with opportunities for forced appreciation. It seems I could scale my portfolio faster with an appreciation focus.

Does anyone have any thoughts or recommendations on this? I live in SoCal so if I wanted strong cash flow I would likely have to look out of state. I am definitely open to out of state investing though if that helps me reach my goal more efficiently, but would love to stay on the west coast. Thanks in advance for any input!

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Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
1y

Focus on buying properties in good locations that will attract high value tenants. Real estate is a long term game and a lot of podcasts, reels, etc will show you examples of 25 year olds retiring from their 400 unit section 8 portfolio in Cleveland. Try not to fall into the trap of believing those gurus or comapring yourself to people you hear on podcasts. Building a rental portfolio that replaces your income takes years and a lot of effort, this is especially true in our high price high interest rate market.

You need to have at least a 10 year vision when buying real estate. This is when you will see growth in rent rates and appreciation. You will also start paying down more of your principal and in those 10 years rates could fall giving you an opportunity to refinance. 

As time goes on it makes sense for more people to try to get rid of their leverage than add properties to their portfolio. Its a lot easier to have a paid off portfolio of 2-3 properties earning you 10k/m in cash flow than 15 properties giving you the same return but are leveraged. 

Just start and make sure you buy the RIGHT property. I'd rather lose 100 bucks a month in a class A area than make 200 in a class D. 

[email protected]267-767-0111
Alan Asriants - New Century Real Estate 590 Reviews
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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    1y

    Both. There is no either or here...especially when starting out.  Understand that the cost to the investor is only the cash that's out of pocket.  The role of cf is to recover that cost. NCF just adds to your cost. Equity is your frozen cash that you access as it grows to build your portfolio 

    2Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Joe Villeneuve I get what you're saying. Hadn't thought about it that way before but I like that. Thanks for the input! 

      0Reply
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    1y

    Nick,

    As you already know since you mentioned it living in California means look to other states for your prime investments. In states like Indiana, Ohio, Texas, Florida, Tenn, Georgia and a few others you do not have to pick appreciation or cash flow. Instead you will cash flow right out of the gate and appreciation is faster in those states with TLC properties or adding things like an ADU, or Carriage home on a bigger lot.

    Most of my investors that live in CA purchase in those states listed above and in most cases its easy to introduce them to local Seasoned realtors Contractors, Handy Men/Women that can help them save money and feel secure about the distance from home to REI. Buying in Indiana and Ohio for example have been on fire over the last 3-5 years. This is mostly due to affordability and for potential ARV options.

    I had a good friend buy a property in Indianapolis off of Union Street for $60K she put $48K into the home which was a total dump and was able to refinance the home to pull cash out in 12 months. The appraisal came in at $285K from a $60K purchase and $48K in work or $108K total. Thats a great way to profit of $177K in a year but she did know the contractors and the has an eye for those type of quick turn arounds.

    You will see multifamily 2-4 units a ton of duplex 2 units for under $250K again these are usually not turnkey fully renovated properties but they will pass an appraisal without being subject to any major repairs. There is a lot of gentrification going on un several area which help that quicker appreciation.

    If you ever have any questions feel free to reach out or send me an email, I enjoy helping other BP members.

    [email protected]727-637-4289
    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Jason Wray I really appreciate the detailed response! You make some great points. Definitely willing to go out of state but really need to feel confident in my team wherever that is. I'd be happy to discuss further.

      0Reply
  • Jared Smith
    Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes
    1y

    @Nick Henry this also comes down to how much time you have available and how much effort you are able to put into purchasing a home or building and doing renovations and then finding quality residents to live and take care of your asset. Active investors absolutely have ability for higher returns, but at some point it does impact your primary job earning power. 

    If you come to the conclusion that you need to focus on your primary earning job but want to start investing in real estate then maybe a turnkey option would be best. If you have any questions or want to learn more about how we help clients all over the world that are looking to be passive investors then we should set up a call to discuss.

    Good luck as you start this exciting journey!

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Jared Smith this is definitely something I'd be willing to entertain. I've heard lots of things about turnkey properties and could definitely use some clarification to see where it might fit into my plan. Thanks! 

      0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    1y

    If you are doing rentals, especially long term rentals, you are unlikely to be able to live off of those for a while if they have mortgages.  The number that pops up on BP is $100 a month cash flow.  That amount varies a lot.  I'd focus on deciding what you want to do (flip-high risk, but potentially high return...or large loss; short term rental-more work, but higher return than long term rental; long term rental-less work than the other two, but lower return).

    Once you've decided which you want to do, then focus on getting the best house to meet your goal.  For rentals, do not buy the cheapest house. The numbers may look good on paper, but the reality is very different-lower quality tenants, higher turnover, more problems and less money than you'd expect as a result.

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Theresa Harris I really like what you're saying about not buying the cheapest house just for numbers that look good on paper. I'm definitely someone who prefers higher quality even if that means building a portfolio takes a bit more time. Thanks for the thought! 

      0Reply
  • Alan AsriantsBusiness Member
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    1y

    Focus on buying properties in good locations that will attract high value tenants. Real estate is a long term game and a lot of podcasts, reels, etc will show you examples of 25 year olds retiring from their 400 unit section 8 portfolio in Cleveland. Try not to fall into the trap of believing those gurus or comapring yourself to people you hear on podcasts. Building a rental portfolio that replaces your income takes years and a lot of effort, this is especially true in our high price high interest rate market.

    You need to have at least a 10 year vision when buying real estate. This is when you will see growth in rent rates and appreciation. You will also start paying down more of your principal and in those 10 years rates could fall giving you an opportunity to refinance. 

    As time goes on it makes sense for more people to try to get rid of their leverage than add properties to their portfolio. Its a lot easier to have a paid off portfolio of 2-3 properties earning you 10k/m in cash flow than 15 properties giving you the same return but are leveraged. 

    Just start and make sure you buy the RIGHT property. I'd rather lose 100 bucks a month in a class A area than make 200 in a class D. 

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    4Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Alan Asriants I really resonate with this! I've heard all the talk about hundreds of units and beat up properties and that just doesn't sound like the right fit for me. I've always been about building something of high quality that is sustainable and like you said I think I'd prefer a little less cash flow in an A class neighborhood. Would love to chat further. Thanks for the response! 

      1Reply
  • Ryan Harrell
    Memphis, TN · Member since 2023 · 100 posts · 24 votes
    1y

    Hi Nick, 

    I’d recommend focusing on appreciation by investing in higher-quality assets in stronger neighborhoods. While cash flow may be lower upfront, your income will grow over time, and the property’s appreciation will provide the equity needed to scale your portfolio faster. This approach balances long-term wealth-building with the ability to reinvest efficiently.

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Ryan Harrell totally agree. I think hearing your thoughts along with everyone else's has given me clarity on the direction I want to go. That being focusing on stronger neighborhoods and higher quality assets. Would love to connect and chat further! 

      0Reply
  • Todd AndersonPro Member
    Real Estate Agent · Cape Coral, FL · Member since 2023 · 392 posts · 175 votes
    1y

    @Nick Henry,

    As others have said the answer has to be both.  

    I work with investors from California all the time that are able to find good cash flow in a growing market where the appreciation is obvious.

    I agree with @Jason Wray that many of the investors I talk with from the West Coast find that the markets in the sunshine belt work far better for their investments.  We are able to find many areas that are steadily in the top 10 in growth nationwide.

    I would also tel investors like yourself to look at the new construction space.  with a new home in a growing market you will be able to get in the way of appreciation without having to put more money into the deal.  They also rent for a good rate day one which helps the cash flow.  let me know if I can help answer more questions.  

    Best of luck.

    [email protected]651-492-5652
    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Todd Anderson really appreciate your thoughts! I like the new construction idea a lot. Definitely something I'm going to look into. Would love to connect and chat further.

      0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1y
    Quote from @Nick Henry:

    Hi there - I am starting out in real estate investing and am trying to build a portfolio of rentals that can produce enough cash flow for me to eventually leave my job and make real estate my main job. I have been going back and forth between an appreciation focused investment versus a cash flow focused investment. I'm unsure which focus would help me scale my portfolio and achieve my goals more efficiently. 

    In the long run, I want to have properties that are producing strong cash flow (eventually would love to own small apartment buildings and syndicate larger deals), but it seems that focusing on cash flow and reinvesting those cash flows will be a slower process than focusing on properties prime for appreciation or with opportunities for forced appreciation. It seems I could scale my portfolio faster with an appreciation focus.

    Does anyone have any thoughts or recommendations on this? I live in SoCal so if I wanted strong cash flow I would likely have to look out of state. I am definitely open to out of state investing though if that helps me reach my goal more efficiently, but would love to stay on the west coast. Thanks in advance for any input!


     >I have been going back and forth between an appreciation focused investment versus a cash flow focused investment.

    You have some flaws in your thinking.  

    The high appreciation market will be the higher cash flow market over the hold.   This is because there is a tight coupling between market appreciation and rent growth.  Rent growth has a much larger impact on the cash flow than the initial cash flow.  Find the market with the best market appreciation over the hold period and you will have found one of the better cash flow markets over that hold period.

    As for the forced appreciation….  Where do you think a rehab is more likely to net the better sweat appreciation the high property value market or the low property value market?  Seems obvious.  I recently added a half bathroom out of existing space in a very high cost market.  The bathroom added ~$50k of value. 

    It is critical that you are not over leveraged.  Low cash flow requires larger reserves.   Do not place yourself into a position of needing to sell in a reduced value environment. 

    Do not fall for the trap that initial cash flow is any indication of actual cash flow over the hold period.

    Do accurate and conservative underwriting.  Recognize in this RE environment it is unlikely to be a get rich quick environment without a full time dedication to value adds.  Recognize buying rent ready units have very thin margins and most properties purchased off the mls will have negative cash flow.  Basically it is not 2012.

    Good luck

    3Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Dan H. Love hearing a bit of a different perspective here. Thank you for your insights. Didn't really consider over the hold as much as initial cash flows when running numbers. You've given me some things to think about. Much appreciated! 

      0Reply
  • Jimmy LieuBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
    1y
    Quote from @Nick Henry:

    Hi there - I am starting out in real estate investing and am trying to build a portfolio of rentals that can produce enough cash flow for me to eventually leave my job and make real estate my main job. I have been going back and forth between an appreciation focused investment versus a cash flow focused investment. I'm unsure which focus would help me scale my portfolio and achieve my goals more efficiently. 

    In the long run, I want to have properties that are producing strong cash flow (eventually would love to own small apartment buildings and syndicate larger deals), but it seems that focusing on cash flow and reinvesting those cash flows will be a slower process than focusing on properties prime for appreciation or with opportunities for forced appreciation. It seems I could scale my portfolio faster with an appreciation focus.

    Does anyone have any thoughts or recommendations on this? I live in SoCal so if I wanted strong cash flow I would likely have to look out of state. I am definitely open to out of state investing though if that helps me reach my goal more efficiently, but would love to stay on the west coast. Thanks in advance for any input!

    Hi Nick, it depends on your goals and what you're looking for. If you have a lot of liquidity and a great paying W2 and can support your rentals, focus on appreciation/equity. If you don't have the most amount of liquidity and want to scale with as little capital as possible, I would focus on cash flow. It's not a black or white answer. However, you can still find real estate markets that have both positive cash flow (aka hitting the 1% rule) and strong appreciation potential. I would recommend taking a look at Columbus Ohio! The macroeconomics look so good for this market - population is growing, job growth is growing, and so many companies moving and developing here. Look at Intel headquarters, Google, FB, Amazon, Nationwide, Honda, etc. Additionally, the price point is still cheap enough to find the 1% rule and positive cash flow and it's super landlord friendly. Lastly, the price point is still very cheap here in the sense that you can still find investment deals that hit the 1% rule for 120-180k! Happy to connect and answer any questions you have!

    [email protected]614-300-7535
    Jimmy Lieu, Red 1 Realty4.9118 Reviews
    WebsiteView Page
    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Jimmy Lieu really appreciate the specific recommendation! That all sounds good and I'll take a look into that market. Will definitely connect to chat further. 

      0Reply
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    1y
    Quote from @Todd Anderson:

    @Nick Henry,

    As others have said the answer has to be both.  

    I work with investors from California all the time that are able to find good cash flow in a growing market where the appreciation is obvious.

    I agree with @Jason Wray that many of the investors I talk with from the West Coast find that the markets in the sunshine belt work far better for their investments.  We are able to find many areas that are steadily in the top 10 in growth nationwide.

    I would also tel investors like yourself to look at the new construction space.  with a new home in a growing market you will be able to get in the way of appreciation without having to put more money into the deal.  They also rent for a good rate day one which helps the cash flow.  let me know if I can help answer more questions.  

    Best of luck.

    Nick,

    Todd is correct and I would take him up on his offer I am just North of Cape Coral where he is at and its another Hot market.  You can build a Vacation home down there and put less money down and still rent it out and later just transition it into a full time rental!

    I have heard a lot of things of the "Seven Isands project" and that alon will help enhance the Cape Coral market.
    [email protected]727-637-4289
    0Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    1y

    OP

    First.    
    First. 
    Work on your cash snowball.  Sale your first unit or two.   Or do a househack and use the $250k 2year capital gain reduction.  

    Otherwise you will quickly run into scaling issues.  

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Henry Clark thanks for the input. Currently renting a room at my primary residence for some mortgage offset. Definitely staying there for 2 years and rolling those gains into the next property. 

      0Reply
  • Nathaniel Floyd
    Real Estate Agent · Tulsa Oklahoma · Member since 2024 · 22 posts · 8 votes
    1y

    Finding the right balance between appreciation and cash flow is key, especially when your goal is to scale efficiently. Appreciation-focused investments can definitely help you grow your portfolio faster through equity gains, but they also come with higher market risks and usually require a strong exit strategy. On the other hand, cash flow investments provide stability and passive income but can take longer to build substantial capital.

    Since you're open to out-of-state investing, I’d recommend looking into Tulsa and OKC. Both markets offer a great mix of appreciation and cash flow, making them starter-friendly. These markets are seeing strong population and job growth, which helps with both property value appreciation and rental demand.

    I’m a real estate agent who specializes in investment properties here in Oklahoma, so if you ever want to dive deeper into these markets or have any questions, I’d be happy to help!

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Nathaniel Floyd thanks for your insights and giving a specific market to look into. Would definitely love to connect and learn more about Oklahoma

      0Reply
  • Jeremiah Dunakin
    Member since 2022 · 186 posts · 192 votes
    1y

    I’m not a guru guy and hate to hear the latest buzz word from bigger podcast. That said David Greene just gave a good analogy. He said cash flow is the blood of your portfolio. I wholeheartedly agree. Furnaces break roofs need replaced and plumbing needs repaired. Me personally I look at my rental as a business everything is paid for by rental. I save all my cash flow for a couple years. While paying down loan. I’ve got enough to cover a roof and a furnace.none of this came from my pockets but tenants. Cash flow is not the only factor in making money but a cash flowing property might be able to pay the expenses and up keep of two properties while one just appreciates. 

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Jeremiah Dunakin ahhh yes I like this thinking that's a good point. Seeing cash flow as a support for your properties while you let them build value overtime. Thanks for the thought! 

      0Reply
  • Bradley BuxtonBusiness Member
    Real Estate Agent · NV · Member since 2023 · 1k+ posts · 708 votes
    1y

    @Nick Henry

    It sounds like you want to gain experience to scale a portfolio over the 1-12k per year cash flow. Getting started with a smaller multifamily with some value add will give you experience and credibility. Finding a deal that breaks even (+/-$100) after all expenses and has a strong equity position with the value add will allow you to scale. Buying in a stronger appreciation market will give you greater gains on your exit of each property. 

    0Reply
    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Bradley Buxton absolutely. I think you've definitely helped me get clear on my direction. Would love to connect and see how you're doing this for your portfolio.

      0Reply
  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    1y

    Appreciation = Specilation/Gambling.

    We have little control over the factors that affect it, albeit for making improvements that will force it to compare with other likenpropetoes that are in a higher bracket. But this is flipping/forced appreciation. Far different from buying and "maintaining" a property in hopes they market forces improve the value.

    It's the same as purchasing a stock after analyzing that market and charts.

    The other factor is inflation, the other thing we have no control over. It's not necessarily that the value of your house is increasing. It's really not unless you improve it. The intrinsic value stays the same, but the value of the dollars used to purchase it are going down, meaning you need more of them to buy it.

    BiggerPockets does a great job of beating the drum for CashFlow and Appreciation, but what you're missing is two important factors. Loan pay down and depreciation. Educate yourself on those, and as long as Cashflow stays positive, appreciation is nothing more than icing on the cake.

    [email protected]
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    • Nick Henry
      OP
      Member since 2021 · 19 posts · 12 votes
      1y

      @Scott Johnson very interesting thoughts here. Thanks for giving a pointer on looking deeper into loan pay down and depreciation. I'll definitely do that and would be interesting in hearing more about your philosophy

      0Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    You could do a mix. That's what I do. I used my house hacking here in Los Angeles and utilized the equity to buy out of state. Like creating a stock portfolio, you could invest in some high appreciation markets and have some cash flow ones to offset the income.

    If you are thinking long term, appreciation is the way to go and generally at the higher price points. A 3% appreciation on a $3K/month rental will do better in cash flow in the long run than a $700/month rental. You have to define what long term means for you.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    1y

    I deal with a number of CA investors that take this same approach.  Take your flip profits in CA, and buy with those profits for CF in the Midwest.  This is very common, and highly successful.

    0Reply
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