Cash Flow AND Appreciation areas???

Buying & Selling Real Estate
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Cash Flow AND Appreciation areas???

Eric A.
Queens, NY · Member since 2014 · 153 posts · 64 votes
I'm considering investing out of state, and from what I've read here on BP, the best cash flow areas are in or around cities in the Midwest or South. Cities like Kansas City, Indianapolis, and Milwaukee frequently come up as great cash flow areas, but always come with the caveat that in 10 years the properties will be worth basically the same when adjusting for inflation. My understanding is that these areas have healthy and diverse economies, stable populations, and strong rental demand, all of which create high cap rates and above average rental returns. My question is, where can I find cash flow AND appreciation? Cities like NYC where I live are highly speculative in nature, meaning the only way to make money is through appreciation (there is no cash flow when cap rates are 3% and rent to purchase price ratios are below 0.3%. I know some people did really well in the last 6-7 years in several Texas cities (Austin/Dallas/Houston etc) where they enjoyed cash flow and then a sudden boom of appreciation. But I'm assuming I missed the boat on those cities at this point in the RE cycle. Has anyone done some good research and is willing to share predictions for which cities might be the next Austin/Dallas? Or can anyone make the case for a particular city as being strong for both cash flow and appreciation? Or am I searching for a unicorn?
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

You can't have your cake and eat it too typically. A property will typically give you one or the other, but not both. Buy some properties for cash flow, and buy others for appreciation so you diversify your risk and get a little of both.

[email protected]301-893-4635Podcast Guest on Show #192
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  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    @Eric A. Easier to predict at a neighborhood level probably. For example KC as a whole doesn't appreciate much but certain parts (such as the corridor) are going gangbusters. East Nashville (TN) also crazy appreciation. The trend seems to be toward gentrification of urban neighborhoods - look for that.

    Disclaimer: If we hit a recession, these neighborhoods are the most likely to revert back toward Class D / ghetto - high risk, high reward!

    1Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    Look at city population growth and racial dot maps, plus a few chats with local agents or investors to confirm your research on good zones vs bad.

    Population growth data will let you find solid cities that have been strong growing for many years.

    Dot maps will show you areas you want to be or not. It also helps you find the right areas around town without knowing the city.

    0Reply
  • Account Closed
    New York City, NY · Member since 2016 · 420 posts · 172 votes
    9y
    Eric P. It's not IF but when.
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    You can't have your cake and eat it too typically. A property will typically give you one or the other, but not both. Buy some properties for cash flow, and buy others for appreciation so you diversify your risk and get a little of both.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    7Reply
  • John Ford
    Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes
    9y

    I'm a fan of the "hybrid" cashflow/equity plays and that's what I'm currently in and looking for more. What @Eric P. said. Pick a market and look for news about transformative projects on the borders between high-/low-end neighborhoods. In Atlanta right now, it's easy: just follow the Beltline. Find the hot neighborhoods where people (Single professionals, DINKS, and maybe young families) want to live now then look for cashflow in neighboring neighborhoods. Especially if there's one bad neighborhood bordered on 2 or more sides by hot neighborhoods with major development. But beware of physical barriers between neighborhoods like highways, train tracks, etc... Also, beware of school boundaries if the hot neighborhoods are more "established families" oriented. Childless adults will cross borders into bad neighborhoods just to be next to the "new hotness" and begin to turn it around, but families...not so much. Ultimately, it's all speculative so the deal must cashflow at least enough to pay all the bills (vacancy, capex, etc...) because the appreciation may be 10 or more years out even without a correction and you've got to be prepared to ride that out.

    4Reply
  • Account Closed
    Real Estate Investor · Kansas City, MO · Member since 2015 · 222 posts · 121 votes
    9y

    I've got lots in my inventory with cash flow AND appreciation!  That's the problem most of the time, investors are looking for just cash-flow without the idea in mind of appreciation!  Kansas City has appreciated in areas at an unfathomable amount.  Most of our properties even appraise 5-10k over what we sell them at.  I have a property in my inventory actually where the one next door we sold for 115k and it appraised for 140k. The one that is in my inventory will be likely the same numbers. PM for more information :) 

    2Reply
  • Gordon CuffePro Member
    Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
    9y

    I was able to meet a multi millionaire real estate investor who told me he never buys in the hopes of appreciation . He only buys for cash flow and at a discount so that he allready has built in equity.

    5Reply
  • Jerome Daughtrey
    Inglewood, CA · Member since 2016 · 22 posts · 8 votes
    9y

    I have similar question, even if it's just for cashflow. I live in Inglewood, CA which would've been great to buy a couple of years ago (hindsight 20/20), but now that I'm looking for areas out of state I have literally no idea where to begin. 

    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    SW Florida has both. Here is the negative: I just paid my tax bills. They have gotten sky high due to appreciation so it is a double edged sword. I will continue to buy in this area regardless. We have great demographics. Over 50% of our sales are CASH buyers. They, unless facing a life event, will never be forced to sell. Therefore, we have quit a bit of cushion even in the event of a downturn. More and more boomers are leaving the northeast and coming to Florida. They prefer the warm weather, cheaper housing than in the northeast, no state income taxes, etc. 

    0Reply
  • Vindy M.
    Frisco, TX · Member since 2016 · 3 posts · 0 votes
    9y

    When people talk about cash flow, is a net cash flow of $150-200/mth a good start ? This is provided all these are taken into consideration - P&I, HOA, Prop Mgmt Fees, Vac Rate, Repairs (5%), Taxes & Insurance. Do investors look for way more than those couple hundred bucks ? Ofcourse, if there is a bigger unforeseen expense, then that cash flow is washed away.. Thoughts ?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    Buy 5+ unit properties, improve NOI, force appreciation and then collect cash flow. Control appreciation rather than be controlled by it.

    Aside from that, as others have mentioned, find the path of progress.  Below is an appreciation tool where you can plug in US locations and find historic appreciation.  Also below is an interactive tool on population forecasts.

    https://www.neighborhoodscout.com/sc/greenville/ra...

    http://apps.urban.org/features/mapping-americas-fu...

    3Reply
  • JOE MILL
    Brooklyn, NY · Member since 2016 · 4 posts · 2 votes
    9y

    @Eric A. - I live in the NYC area too, and there is plenty opportunity here too. You may not find 10% cap off the bat but you will find 5% and work it for 24 months, you can easily turn it into a 10% (besides for appreciation we enjoy here) 

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    @Account Closed rent has to increase at a similar pace as the appreciation rate for true cash flow returns to keep pace; otherwise, you end up with a low ROE.  If your $115k property is now worth $230k, it's rent has to increase from $1,150/mo to $2,300/mo for true cash flow returns to keep pace (for illustration purposes).  That may be feasible in some markets and not feasible in many.  Some investors confuse low ROE (after the appreciation) with good cash flow.

    It's also easy to get complacent and not subject an appreciated property or portfolio to the same criteria as a new acquisition.

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    lol that's a unicorn if you are not doing the value add yourself.
    0Reply
  • Eric A.
    OP
    Queens, NY · Member since 2014 · 153 posts · 64 votes
    9y
    JOE MILL what are your favorite neighborhoods in NY with 5-caps and what is the cash flow situation if you put 20% down purchasing today?
    0Reply
  • JOE MILL
    Brooklyn, NY · Member since 2016 · 4 posts · 2 votes
    9y

    @Eric A. - I am by no means an expert - but areas I am looking in are Bushwick (not really getting 5 caps anymore) Greenpoint, Fort Greene, Williamsburg, Clinton Hill. I am not clear on your question regarding the 20% down - 

    0Reply
  • Eric A.
    OP
    Queens, NY · Member since 2014 · 153 posts · 64 votes
    9y
    maybe the better question to ask is where is the next Austin or Dallas? What were the market forces at play that led to those metro areas that for a long time were slow-appreciating/good cash flow areas, to a sudden boom of appreciation? And who has good educated guesses about where we might see the beginnings of similar forces at play around the country? For example where are young, educated, tech-employee types or hipster-types moving when they don't move to the coastal cities? Maybe southern cities like Nashville? Do Atlanta or Raleigh still have room to run, and do they still offer positive cash flow?
    0Reply
  • Account Closed
    Raleigh, NC · Member since 2015 · 30 posts · 14 votes
    9y

    in the raleigh area, Pittsboro and Mebane are great places to invest for appreciation. If you can buy a 3 BR in the $150k and under range then you'll cash flow really well in the Raleigh area if its a well maintained house.

    0Reply
  • Cindy Donley
    Investor · Austin, TX · Member since 2016 · 16 posts · 12 votes
    9y

    Very interesting map @Mike Dymski, what's drawing so many people to the Las Vegas and Utah area?  I didn't even think some of those areas were populated at all.

    0Reply
  • Eric A.
    OP
    Queens, NY · Member since 2014 · 153 posts · 64 votes
    9y
    JOE MILL sorry I should have been more clear. My question is if you purchase a property in say Bushwick (or any of those nabes), and you make 20% down payment, will the rental income for that property at least match the mortgage payment plus taxes/utilities/maintenance (total operating costs)? I'm pretty sure the answer to that is no. So yes you'll probably get appreciation over time, but you'll be coming out of pocket several hundred dollars per month while you wait for that to happen.
    0Reply
  • JOE MILL
    Brooklyn, NY · Member since 2016 · 4 posts · 2 votes
    9y

    @Eric A. - that would be correct if you buy at existing 5 cap with 20% down. But that is for real rich people that only want to park their money somewhere and in that case they are putting more than 20% - For us poor folk we start with 5 and with a lot of value add on in a ton of creative ways turn it into 10 or more over 24 months to make it positive - that is the only way here - or head over the bridge to Jersey City - plenty good numbers over there

    0Reply
  • Account Closed
    Rental Property Investor · Vancouver, WA · Member since 2014 · 308 posts · 144 votes
    9y
    Originally posted by @Account Closed:

    I've got lots in my inventory with cash flow AND appreciation!  That's the problem most of the time, investors are looking for just cash-flow without the idea in mind of appreciation!  Kansas City has appreciated in areas at an unfathomable amount.  Most of our properties even appraise 5-10k over what we sell them at.  I have a property in my inventory actually where the one next door we sold for 115k and it appraised for 140k. The one that is in my inventory will be likely the same numbers. PM for more information :) 

     Hey Mackaylee,

    PM me, I'd be interesting in having a chat with you about this.

    0Reply
  • Eric A.
    OP
    Queens, NY · Member since 2014 · 153 posts · 64 votes
    9y
    Mike Dymski those links are super helpful. I'm gonna play around with the data and check on a few cities I have a hunch about. Population growth and demographics hold the key to future appreciation. If there's a city that is trending toward 20%+ population growth over the next 10 years, especially in an optimal demographic mix, that's a pretty safe bet for solid appreciation. If there's even a modest amount of positive cash flow to be had today, then it's a no brainer. Thanks for these tools!
    1Reply
  • Jen Narciso
    Investor · Montclair, NJ · Member since 2016 · 60 posts · 14 votes
    9y
    Thanks for sharing!
    0Reply
  • Account Closed
    Investment Consultant · Austin, TX · Member since 2016 · 28 posts · 27 votes
    9y

    @Eric A.

    If you'd like to see some very reliable economic data on the MMAs in Texas, the Real Estate Center at Texas A&M's website is an incredible resource. Although I'm University of Texas alumni, it is an excellent resource to draw info from and should have the market data you're looking for on big Texas cities.

    Here's the link: https://www.recenter.tamu.edu/

    Best of luck in your REIs and if you're ever in need of some help or info on the Austin area, feel free to contact me!

    2Reply
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