Thoughts on Buying for Cash Flow vs Appreciation

[Cristian Cedacero]

Hi all! 

tdlr: I have a unique opportunity here of not paying a down payment or closing cost and not sure if I should take advantage of this and buy a more expensive property or settle for a cheaper property. My ultimate goal is to buy multiple units.

I was approved for a NACA mortgage where I don't have to put down closing costs and can get up to a 2-3% lower interest rate than the market.

I'm thinking of buying a multi-family to live in a unit and renting out the other 2 units. The problem is I'm having trouble deciding between buying in an expensive market like NYC /NYC metro area where 3-family homes go for like a minimum of 999 in the Bronx. Since NACA allows you not to put down a downpayment and no closing costs I wouldn't have to worry about that even though I do have money to cover rent for a while if things go wrong.

The problem here is that based on numbers these units will be hard to cash flow with such a high mortgage but because is NYC/metro I'm sure they'll appreciate in value. The other option I was thinking about is buying further out of the city in the capital region where I can get a 3 family that may need a bit of work for 250K+ or one in k shape for 320k+.  Rent is much cheaper in those areas at around 1k - 1.4k depending on units but these are much more likely to cash flow. Especially when purchased through Naca.  These units will most likely not appreciate much but will cash flow when compared to the NYC area market.

What are your thoughts? Thank you!!!!

[Jon Kelly]

@Cristian Cedacero run the numbers on both scenarios and look at IRR after 5, 10, 30 years. $999k property will earn much more than the $300k property...

I'd try to max out the NACA benefit and should for the highest property value you can.

In both scenarios your COC return is almost infinite so you can't go wrong.

[Eliott Elias]

In this market, you definitely don’t want to buy for appreciation 

[Jonathan R McLaughlin]

@Cristian Cedacero you will make more money on loan pay down than appreciation, be sure to factor that in

[Bruce Woodruff]

If.......If RE prices drop significantly, and you buy in low, then yes the appreciation you will receive can be huge.

But unless that happens, don't buy for appreciation right now.

[Steve Vaughan]

The key buying in expensive markets is buying below market value.  Bake in your appreciation with equity capture at the buy. 

This means more work sourcing an off market or motivated seller but will put you ahead years worth of cashflow without the hassles messing with mid grade tenants and assets.  

The answer?  Buy your local househack but get a great deal.