Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
Yes L.A. and the OC are great places to live but not the greatest place for the average real estate investor. I did say average because those with cash are still buying. Some are even tearing down the old replacing them with brand new dwellings. Our market here is in a rising price spiral for now. Eventually it will crash again. The thing about this, is that in each cycle the prices go even higher. If you want appreciation LA/OC is the place. The problem lies can you buy when it is a buyer's market and hold on until it is a seller's market. If you can, you will be well rewarded. Many investors here are price out of the market and that is why we have to go the out of state route to invest. So what is best for you? Do you buy and hold for appreciation or buy and hold for cash flow? I myself prefer the appreciation for long term but everyday living requires cash flow for me. I think I covered the problem why investors have to go outside their local area to invest. So what do you do? Stay local and do nothing or head for the nearest exit and start making some headway in an out of state investment? You make the call.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
11y
The reality is you have to invest for both.
If your area isn't appreciating long term, it's dying... if the area is dying, your property is dying, your cash flow is dying.
So invest in a place where the numbers work not only this year, but the forecast is the numbers will work long term. I fully intend to own these homes in 50 years and eventually passing them along to the kids.
The problem I have with appreciation is... what do you do with it? Hey, I just got $100k in extra equity?! Great... you can't cash it out and still cash flow... you could sell the property... but now what are you going to do with the $100k... go buy new properties? In your market, all the other properties have probably had similar increases so it doesn't really add anything. Sure, you could try to time the market... buy low in CA... sell high in CA... then go invest in cash flow in Indianapolis... but that's just gambling and market timing IMO.
Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
11y
For me, it's cash flow. Waiting for appreciation puts your financial future in the hands of a market that can turn against you. Real estate is really volatile in LA and OC and we've already had a pretty big run up in prices the last 5 years, so could we be due for a downturn? When investing for cash flow, you put your financial future more in your own hands, plus cash flow is what gives you financial freedom.
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
11y
Great question I like cashflow and EQUITY with the possibility of mild appreciation. I don't play the lottery. Also passive income is my current goal. I would much rather have a home that I bought at an absolute steal where I can cashflow at 200+ a door. The way I see it my equity is a tool and security blanket. If the market crashes I can still sell and make a profit. If I need money for a deal I have somewhere to pull it from other then my bank account.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
11y
The reality is you have to invest for both.
If your area isn't appreciating long term, it's dying... if the area is dying, your property is dying, your cash flow is dying.
So invest in a place where the numbers work not only this year, but the forecast is the numbers will work long term. I fully intend to own these homes in 50 years and eventually passing them along to the kids.
The problem I have with appreciation is... what do you do with it? Hey, I just got $100k in extra equity?! Great... you can't cash it out and still cash flow... you could sell the property... but now what are you going to do with the $100k... go buy new properties? In your market, all the other properties have probably had similar increases so it doesn't really add anything. Sure, you could try to time the market... buy low in CA... sell high in CA... then go invest in cash flow in Indianapolis... but that's just gambling and market timing IMO.
Investor · Sunland, CA · Member since 2013 · 260 posts · 240 votes
11y
How do you buy and hold strictly for appreciation? I presume that you mean you might invest in something that covers the NOI plus cost of financing and nothing more, depending on the price to go up in order to profit.
Unless you're selling you must be renting, so why wouldn't you make sure you're going to cashflow? After all depending on passive appreciation is speculation, not investing. Unless you have a crystal ball, you won't know whether the value will go up or down in the future. "Appreciation or cashflow" is not the question.
The question ought to be "cashflow or capital gains?" LA/OC (and most of the neighboring counties) generally don't cashflow as well as other parts of the country. Here in town rehabbing is often a better idea because it creates forced appreciation, but capitalizing on that depends on selling quickly. Buy and hold for cashflow. Rehab and flip for capital gains.
This is just my humble point of view. I just hope this addresses the question of what do you do. It's still your call.
Specialist · Kirkland, WA · Member since 2013 · 1k+ posts · 817 votes
11y
such a complicated question. This question gets asked a lot here in California. The response I always give is, what are your goals?
Appreciation is awesome if you have a great job and love working. In 20 years when you retire and have paid Dow. Your mortgage, you are going to be doing awesome.
However, I don't want to wait 20 years to appreciate my real estate investments . I'll sacrifice the long term capital gains for cash today which can support my lifestyle and continue to give me cash to increase my real estate holdings.
I have no wife, no children and a low cost of living. I want to continue being able to do almost whatever it is I want. So Cashflow is my goal. That provides for now and possibly the future. When the future comes, I might worry more about wealth preservation and invest for bigger appreciation.
Real Estate Investor · Pensacola, FL · Member since 2012 · 136 posts · 83 votes
11y
What are you looking at in terms of differences in ROI and COC returns? Are we talking a pure speculation play with a hefty payment and little cash flow? How old is the roof? Is this a 15% ROI on a sub $30k? This question is way too broadand impossible to answer.
Real estate investor · Las Vegas · Member since 2013 · 798 posts · 171 votes
11y
this question has been posed a million times on here and I do believe it depends on your goals. Both would be nice, but cashflow in certain areas is my objective. Cashflow is a lot more predictable than appreciation.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
11y
Q: appreciation OR cash flow?
A: appreciation AND cash flow!
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Lemme let you in on a little secret- say you buy an SFH or 2-4 units in Appreciationsville(TM) and it doubles in value in 10 years (sounds familiar, Bay Area and costal SoCal?) In almost all cases the rent will also go up substantially as well! That's how it works. But the trick is, how do you get into the home and hold it the first few years...get a great deal, super low IO loan, develop/improve/best use, can put 20-30% down? These are all ways. It's difficult to get started, but the good news is once it starts to roll, you can refi/pull cash out and wash-rinse-repeat. I'm on round 3 and let me tell you, it gets much easier the 3rd time! Oh, and work with the market cycles as best you can, that always helps. That's it, my investment strategy in a paragraph. Everything else I write on BP is superfluous :)
Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
11y
My efforts are focused towards cash flow and real estate as a job until I get "out of the rat race." Once I'm out of the rat race, I want to continue building up my cash flow but also start thinking more about appreciation. IMO, you focus on cash flow to live off of and to achieve financial independence. You focus on appreciation when you're ready to build wealth. While you're building your wealth you start to focus on achieving your wildest dreams and your legacy.
Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
11y
Why not play the cycles? Why would you put all the effort into buying and managing for 3k/year cashflow when you could make 30-100K in value plays? Once you build up a couple million then you can apply that toward a cashflow deal.
Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
11y
Truly I like both. I agree, cash flow is for financial independence is what I have. The appreciation is for wealth building which I must get to work on. Right now, I am happy with my cash flow properties.
Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
11y
@Mark F. I am also investing in Texas - Houston. But this year I am looking at other cities. I will look into Indianapolis, St. Louis,, Kansas City, and Cleveland because you can get more bang for your bucks.
Rental Property Investor · Cleveland, OH · Member since 2014 · 214 posts · 86 votes
11y
I have seen that there is a sweet spot in the B type areas, where you can get both. There are never any certainties, but I have seen and worked with a good amount of buyers in the Cleveland area/suburbs that are finding a combination of both. I think anytime you go for one or the other, your setting yourself up for unnecessary risks, especially if your going for the Cashflow only method.
To many things can go wrong, and it is to easy for a "Cashflowing" property to turn and take money from your pocket instead of adding to it.
If you have a lot of money and are looking for somewhere to park cash long term, then appreciation and A areas, are a great idea, but for most people that isn't a viable option.
Cleveland, OH · Member since 2011 · 400 posts · 223 votes
11y
Appreciation is ultimately driven by regional population growth. Appreciation plays are purely based upon the expectation that a particular area's population will continue to grow indefinitely. In the past, we were able to safely assume that a high birth rate would sustain population growth throughout the country. In 1972, the USA's birth rate fell below replacement and has been declining ever since. Since then, most of the high-dollar markets have relied upon domestic and international migration to drive real estate prices.
The developed world almost without exception has a sub-replacement birth rate. Many experts have opined that as the world population modernizes, the aggregate birth rate will fall to replacement and population will peak. That means that the epoch of constantly appreciating land will probably come to an unceremonious end, when fewer people demand residential real estate.
Many factors drive the market price of raw real estate, but overall, a growing population is necessary to sustain high housing prices. This country has never experienced a major peak in population. When it happens, strange things will happen.
Personally, I think that the rapid aging of the population and the attendant increase in entitlement payments will absolutely crush the high-value real estate markets well before peak population hits. When the half of this country who works for a living shrinks to one-third and gets hit with a 30% payroll tax to pay for the bills of the elderly, people are going to get frugal about housing in a real hurry. It's already happening in the 18-35 age bracket.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
11y
Lol. The nearest exit. I love it.
I live in Venice Beach and I've always done out-of-state just because cash flow has been my focus for now. Buying for appreciation is definitely speculation, and being such a high-dollar market, it's a huge risk. However, that's not to say I won't ever do it. But when I do it, it will be with extra/fun money, not serious money. At least when I have enough money to risk losing. Not before. Not to say I assume I would lose it, but because it is speculation, I want something more fundamentally stable before shooting for the crystal ball. The crystal ball will be a blast when I do it, for sure, but I'm not there yet.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
11y
I look at this as a regional deal with timing mixed in. If you invest in an area with historical appreciation like LA or SF then you typically get substantially more returns vs the straight up cash flow area. If you can stick around for a couple decades in the appreciation area that is where the big difference really pans out. See all of Amits appreciation posts for real world examples.
Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
11y
Perhaps appreciation is the wrong word. The markets go through up and down cycles. There are macro cycles that change with the overall economy and micro cycles that tend to be more localized.
These local cycles will change with job/population growth, building supply, changes in demographics, etc.
These tend to have affects on apartment values.
Values are also affected by property management.
In a rising market the management issues don't show up as much because people overlook them and many buy on pro forma.
When the market is weakening due to overbuilding or job losses, these poorly managed properties will have difficulty selling thus leading to rapidly falling prices.
Shortly after this part of the cycle is the time to buy. There are less buyers because everyone is scared off and most people cannot see the improvements until they are in full force.
You can call this what you want; appreciation, value play, dumb luck, etc... But the bottom line is that there is a better way to invest than the nickel and dime cashflow game.
Investor · Hampton Roads, VA · Member since 2014 · 1k+ posts · 418 votes
11y
Appreciation doesn't exist for me. I buy strictly on cash flow and how long it will take for the renters to payoff the mortgages once my target goal of passive income is achieved. But, my goal is to hit a certain rental amount and quickly payoff the mortgages and no longer care. I like things to be boring.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
11y
I had a post where a gentleman bought a quad for 13k in 1972 and just sold it for 1 mil. Did he bet on appreciation or was appreciation already there? I don't buy the stance that appreciation is speculation... either the area has it or not. It is not an unknown historical factor. The same could be said for cash flow.
Appreciation doesn't exist for me. I buy strictly on cash flow and how long it will take for the renters to payoff the mortgages once my target goal of passive income is achieved. But, my goal is to hit a certain rental amount and quickly payoff the mortgages and no longer care. I like things to be boring.
Couldn't agree more! I have control over cash flow, I don't have control over how the market drives appreciation. My plan is to have lots of paid off properties cranking out tons of cash flow. If I get appreciation too, then I consider that a bonus. If not, it's not that big of a deal to me.
Investor · Lancaster, PA · Member since 2014 · 53 posts · 60 votes
11y
Cash flow is king.
As Josh always says on the podcast, appreciation is icing, if it's there.
Remember, the markets that swing the most, and give the most possibility of appreciation, also have great potential for depreciation - and going under water places all of your investments at risk.
Remember, the markets that swing the most, and give the most possibility of appreciation, also have great potential for depreciation - and going under water places all of your investments at risk.
If you are playing the cycles right and buying toward the bottoms, what is your risk then?
For the OP, ask this question to the most successful investors and see how the results change. I would bet that it would be much more heavily weighted toward value plays, forced appreciation, and playing the appreciation cycles.
Remember, the markets that swing the most, and give the most possibility of appreciation, also have great potential for depreciation - and going under water places all of your investments at risk.
If you are playing the cycles right and buying toward the bottoms, what is your risk then?
For the OP, ask this question to the most successful investors and see how the results change. I would bet that it would be much more heavily weighted toward value plays, forced appreciation, and playing the appreciation cycles.
Very true, good point. However, these are usually very experienced investors - and even they will get burned sometimes.
Very true, good point. However, these are usually very experienced investors - and even they will get burned sometimes.
That is a fact. I got burned and lost millions. But, I grabbed what I could at the bottom and made a couple million back real fast. You can lose money but you don't lose the knowledge that comes from losing money.