Why is cash flow important to many here?

62 Replies

I was thinking in a long term view.  Take two examples, tell me which you'd buy.

House 1:

100k house, 5k down, 20k in repairs

Rents for 2k

Cash flow is 500/mo

House 2:

500k house, 25k down, no repairs

Rents for 4k

Cash flow is 0 after PITI, Insurance, etc.

House 1, in 30 years you own a house free and clear that is worth 217k, and if you saved the 500/mo at 7% return, 640k in the investment acct, 857k total.

House 2, in 30 years you own a house free and clear that is worth 905k, even ignoring cash flow from rent raises for year 2-30.

A few notes.

In both cases, I assume house appreciation tracks inflation (2%) as it has on average for a long time.  If you assume greater appreciation, House 2 does even better.

I included no "cash flow" for house 2 but I assumed 2% increase in cash flow for House 1 yearly.  However, House 2 would probably begin to cash flow in year 2 at first rental raise, and I didn't include any of that in the long term projections.

Also, why do people consider House 1 to "cash flow" if the mortgage is paid down $137 in month one and you get $500 cash ($637 total), but House 2 doesn't "cash flow" even though the mortgage is paid down $684 in month one?  Both are off an initial 25k outlay.  Both seem like money in the bank to me.

It seems to me that we're investing in land here (there is not much of a price difference between a water heater for a 500k house and a 120k house or a call to unclog a toilet - in fact, those numbers work against House 1 - and usually a majority of the difference between a 500k house and a 120k house is the dirt it sits on) and if that's the case, aren't we aiming to leverage as much money as possible to buy as much land as is possible, in the long run at least, and have some tenants make the payment for us in the meantime?  Seems like appreciation is the key.

What's your take on this.  What am I leaving out, missing, etc, I'd like to hear other opinions.

Happy New Year! I am a novice compared to the other folks in here...so here is my opinion and some questions that need to be answered first...next your analysis seems to be skewed to the results you want.  How did you get to only $25k down on 2nd property? Why isn't it the typical 20-25% down? Next, what about upkeep costs on 2nd property? Next, what about if I were to say I could get 2 or 3 units using the same $500k value that will generate lot more then the single property in your 2nd scenario. I just think there are too many moving parts that should be defined first. 

Lastly, I would spread out my risk, rather then putting everything in one property. Again, only my novice opinion.

"I'd like to hear other opinions."   Really.

Cash flow is important because unlike investors that are already filthy rich most of us use our income to put food on the table and pay our bills. Pretty hard to do when your income is zero.

Investor....speculator. There actually is a small difference that most speculators refuse to acknowledge. Most are defensive when this is pointed out.

Two cents
1. You are assuming 30 year / forever hold period which isn’t true for many people for many reasons
2 you are also assuming that if the heater broke, you have additional funds to fix them - if the property is not cash flowing, any unexpected maintenance/ longer vacancy will force you to put in more money which is not sustainable- positive cash flow helps u survive these downturns for a longer period and makes a huge difference in your ability to hold it forever

In these given scenarios, I would buy option 1. Save the $6,000 and buy another the next year. Than with my $12,000 cash flow from year 2 buy 2 more properties...Assuming you could always buy properties at 5k, that cash flow 500/month you'd have over 30 properties in 5 years.
But I didn't read the repairs part so that changes things a bit...my basic point is i use cash flow to snowball into my next property.
Originally posted by @Paul RP :

Happy New Year! I am a novice compared to the other folks in here...so here is my opinion and some questions that need to be answered first...next your analysis seems to be skewed to the results you want.  How did you get to only $25k down on 2nd property? Why isn't it the typical 20-25% down? Next, what about upkeep costs on 2nd property? Next, what about if I were to say I could get 2 or 3 units using the same $500k value that will generate lot more then the single property in your 2nd scenario. I just think there are too many moving parts that should be defined first. 

Lastly, I would spread out my risk, rather then putting everything in one property. Again, only my novice opinion.

 I was assuming a 5% down loan on both, rent out later (yeah, I know, in violation of the terms you must live there a year, etc.)

What are the costs to upkeep the second property?  When I have a 150k house, my water heater costs the same as the the 500k house I have.  The difference is the location of each and the price of the dirt mainly.  For example, a mile south of one house I could buy the identical house across the county line for 100k less (maybe even less) but the rent will also be less because no one wants that school district.  Shoe boxes in NYC cost millions.  We can pretend that there is a huge difference in cabinets or granite or tile or whatever, but I haven't found it to be that great once we get to the installed price.  Identical houses with identical upkeep/maintenance/carrying costs (including insurance! - a friend has a smaller, cheaper house in a worse area, pays 4.5k a year, I pay under 3k) vary in price simply because of location.

I was just thinking about renovation/carrying costs for these 100k houses and I'm not seeing huge savings and am wondering if I should be looking at them differently.  I couldn't even get insurance that would rebuild them.

But like I said, maybe I'm missing something here.  South Florida is more expensive than average with higher rent prices than average so maybe that has something to do with it.

Originally posted by @Thomas S. :

"I'd like to hear other opinions."   Really.

Cash flow is important because unlike investors that are already filthy rich most of us use our income to put food on the table and pay our bills. Pretty hard to do when your income is zero.

Investor....speculator. There actually is a small difference that most speculators refuse to acknowledge. Most are defensive when this is pointed out.

 I understand the difference there.  But if you were looking long term, and not using it to put food on the table now because this isn't a primary job (so, speculator I guess)...I guess that's what I'm asking.

Originally posted by @Eric Bell :
But I didn't read the repairs part so that changes things a bit...my basic point is i use cash flow to snowball into my next property.

 That's kind of the thing though...you're throwing 20k into these wrecks in awful areas...getting into them for 25k, instead of getting into something nice for 25k that will appreciate more over the long run.

I mean, of course we can mess with numbers all day, rates of return, different cash flows, etc.  But as a general strategy, I'm trying to figure out which would be better long term, which is what I'm looking at.  As in, pass on properties tax free to my kids long term. Or sell the year they change the cap gains rate to 0% for some reason, etc.

Plus, I look at a house that reduces a mortgage by $700/mo "cash flowing" as soon as you refinance and raise the rent in a few years if that's really important to you.

Originally posted by @Bon Khator :

Two cents
1. You are assuming 30 year / forever hold period which isn’t true for many people for many reasons
2 you are also assuming that if the heater broke, you have additional funds to fix them - if the property is not cash flowing, any unexpected maintenance/ longer vacancy will force you to put in more money which is not sustainable- positive cash flow helps u survive these downturns for a longer period and makes a huge difference in your ability to hold it forever

 Right, but if you did have those extra funds and it was no big deal, or included them in your original calculation...

And you could refinance in a few years, and you have raised the rent, etc...you could "make" it cash flow...

I guess I look at payments to principal and "cash flow" as the same - I mean, imagine if you took the "cash flow" and paid down the principal instead, you'd be in the same position ($0 in pocket) except you would be gaining as much appreciation.

You can always pull out the "cash flow" money later.  I understand that some people need it now to spend on personal bills, etc.  But I'm just looking long term, as in, a way to retire eventually.  It seems getting as much money from the bank for properties that will appreciate as much as possible and tenants that make the payments is as good of a strategy as I've seen, and want to know if I'm on the right path or overlooking something.  Until a bank loans me millions at 4% to invest in the market at 7%, of course.

We have people buying condos in miami still at 700k in cash, that cash flow 1k a month.  Not even leveraged! Not even a 2% return! It's all a gamble on appreciation.

@Stuart M.

Hi Stuart. I'll probably be one of the only few that will lean towards House 2 approach.

I've been buying houses in Brooklyn, NY for the last 20 years. It's your House 2 on steroids.

Results are incredible. Real Example:

Year 2000:

Purchase Price: $140k, $21k down and $7k Closing, $119k Mortgage

Rent: 2 Units at $500 each per month

Cash Flow: ZERO

Repairs: $40k

------------------------

Year 2017

Current Value: $1 Million

Profit if Sold: $1 Million minus $40k Repairs minus $21k down minus $7k Closing minus $80k Mortgage Balance minus $50k in Commissions minus $35k Seller's Closing Costs = $767k profit on $21k down plus $7k Closing plus $40k in repairs = $767k / $68k = 1,128% ROI just on Appreciation and Mortgage Reduction.

Current Rents are $1,850 for Unit 1, $1,900 for Unit 2. Cash Flow is approximately $2.5k per month

-----------------------

I started getting Cash Flow in Year 3 with the above property.

I used the Equity to Buy other properties. In fact, all other properties came from the Equity of the previous properties.

Some call it luck. I did this 8 times in 20 years. Virtually all properties are similar to this one.

I will say that I was also a highly paid Programmer when I graduated College in 1997 and didn't need the Cash Flow to put food on the table.

BUT, I will also say that if you don't need the cash flow, you can get into these kinds of lucrative properties.

You can't just do the numbers. You need to assess the long term effects of economics as well as other external scenarios like Climate Change.

I'm not sure about Boca Raton or where you are planning on investing finally.

Florida will deal with Rising Sea Levels, but 2017 was devastating in terms of Hurricanes. Prices will be in the next 30 years will depend on what Florida does to counteract Climate Change, if anything can be done. If anything, you will have to take into account higher increasing Hurricane Insurance over the future years.

That's also the beauty with doing a long term analysis. It makes you think of the future. I normally put together a 10 year projection and take into account all the effects of future Economics and other things like Climate.

Just like a Squirrel who has to put away nuts for the winter, if that little animal didn't think of the future, he'd starve to death before the Spring!  

Originally posted by @Stuart M. :
Originally posted by @Eric Bell:
But I didn't read the repairs part so that changes things a bit...my basic point is i use cash flow to snowball into my next property.

 That's kind of the thing though...you're throwing 20k into these wrecks in awful areas...getting into them for 25k, instead of getting into something nice for 25k that will appreciate more over the long run.

Because in the right area that wreck can easily get you $1k a month in rent whereas the appreciation you are hoping for might never happen.

Number 1 is investing, number 2 is speculating. 

With number 2, where you just break-even, you are speculating, that the values will always go up. 

Yes, you can make money both ways, but speculating is much riskier, because there are a number of factors that can throw a wrench into your gears. 

What happens, if there's a correction in the next 30 years? Values will come down and you'll be underwater. With a bubble bursting, rents will often come down as well. People won't be able to afford 4K rent. Now you'll have some serious negative cashflow. 

Who do you think survived the last cash better? Those with break and butter homes or those with luxury homes?

@Michaela G.

@Stuart M.

I would like to change the scenario of house 2 a little differently.

Let's say that House 2 was purchased with All Cash instead of $25k down. So the investment would be $500k.

Since the Rent is $4k a Month, obviously, Stuart would be at a very good Cash Flow per month, in fact, better than in House 1.

Does that mean to you that all of a sudden House 2 is less risky or that House 1 is more risky?

What I'm pointing out is that it's not the HOUSE that's risky or not.... it's the INVESTOR, in this case Stuart.

Stuart's example of House 2's scenario is to finance it with $25k down or 5% down and mortgage it at 95% LTV.

House 2 is perfectly fine as an Investment.

What Michaela is probably saying, and she can speak for herself, is that when you, the Investor, sets up the finance in such a way that you give no room for the possibility of something happening where the cash flow can pay for it, you take the risk you don't have enough of a savings reserve to overcome that problem.

What I'm saying is that, yes, it's true, Stuart's House 2 scenario as is leads to the risk of not having enough cash flow for future repairs should it come about.

Stuart would need some way to get some extra money should that occur. That may mean borrowing from some source like his Savings, taking a personal loan if there isn't enough equity, etc.

OR, Stuart can put more down and increase the Cash Flow, which he can then save for future repairs.

HOWEVER, I want to point out that House 1 or House 2 are neither good or bad.

What is Good or Bad is how Stuart decides to Finance either one.

When we use some metrics like Cap Rate, we don't include the financing (also called Debt Service). That can give us an overall measurement of the ROI in the 1st Year.

So if you calculate the Cap Rate on both House 1 and House 2, the financing and Cash Flow will not be taken into account. Therefore, you can pick the more profitable Investment, but again, given only the 1st year.

The Financing Part of it is really more about how much risk you want to take on in regards to the lowering of the Cash Flow you will have as you pay the monthly Mortgage.

NOW, in my opinion, once we have an understanding that the Monthly Cash Flow depends not on the Property but on the Investor that decides what kind of terms for the Financing, then if we were to use the words speculation, it's more about the Investor Speculating that the lack of cash flow can work in this scenario where he may depend on future increasing rents to raise the cash flow.

If the 1st year initial cash flow is too risky, all the Investor has to do is put more down. Hence, it's not about the Investment, it's about the INVESTOR.

@Llewelyn A.

Then lets compare those scenarios with 'all cash'

1. pay 100K and get 2K per month - that's roughly 24% ROI

2. Pay 500K and get 4K per month - that's roughly 10.4% ROI

@Michaela G.

That's not enough information for me to make a decision to buy an Investment. I need at least the following:

1) Projected 10 year rent increases

2) Projected 10 year expense increases

3) Economic Dependencies... is this a Detroit where it is 90% dependent on Automotive or is it like NYC where there are 100s of industries that will support any single downfall in a particular industry?

4) Climate Issues - Is the area vulnerable to increased flooding?

5) Are there any Developments that can impact the location? For instance, a major transportation hub like a Subway Station? Maybe a large Business Development office? Or perhaps a new Water Sewage Plant or homeless intake shelter which can negatively impact the area?

I can't really determine if an investment is good or bad based on the 1st year information.

I consider an investment a Vehicle.

When you drive your Investment Vehicle, your eyes need to be looking through the windshield and watching what's in front of your (the future). If you only drive looking at the side window (the present or 1st year data), you will crash your investment vehicle if the road is not completely straight without any obstacles. If you look only in the rear view mirror (the past data), you will crash your investment vehicle again, if the road isn't straight. BUT, if you look 95% in to the Windshield (the future), you can avoid obstacles like when the bridge is broken and you are about to fall off.  You will also be able to avoid any turns in the road, even find alternate routes if necessary to finally arrive at your successful destination.

Llewelyn....sure there's more involved but we were only given the scenario of price and rents, so that's what we need to base answers on.

You then suggested to throw in more cash to make it cash flow positive and i countered with all cash.

Heck....you can buy a house for 10k and get $1 in rent and on paper you have positive cash flow.

@Michaela G.

There is more involved... at least from my point of view.

In your scenarios, a 24% ROI and a 10.4% ROI in the 1st year, I wouldn't be able to make that decision as explained by my previous post.

What I'm trying to say to Stuart and the other posters who picked House 1 in Stuart's example is that hey... House 2 can work, it all depends on the future scenario and we may not have enough data for it.

After all, I've made millions for myself and Partners based upon House 2's scenario, but only because I was able to analyze the data which gave me the insight and vision to drive my investment vehicle forwards, avoiding obstacles like the 2008 Financial Crisis throughout my 2 decades of experience.

Generally, we don't do 5% down, however, but we have bought properties where the 1st year Cash Flow was Break Even. We know that if our Mortgage was a 15 Year Fixed Rate Mortgage and we are breaking even AND it was $1 Million, we are building Equity simply by the Mortgage Balance Reduction which is approximately $1 Million / 15 years = $66,667 per year. Imagine that!

I'm not sure why people don't consider that. I think because they feel they can't get the equity out?! But you can! I've done it plenty of times using Equity Loans and Lines.

Is it real? YES! I've sold one of the 8 I purchased for a huge return, then invested in another again, for a huge return.

Anyway, there is more than meets the eye than just the 1st year ROI. I'm just trying to bring it to the readers attention.

I think the majority of BP'ers view Real Estate as a good return / safe and relatively risk-free mechanism for investing. 

There is certainly another segment of RE investors who bank on speculation and appreciation. It's the higher-risk sector of investors, and while there are many who do it, it just doesn't gel with the BiggerPocket's culture.

I would compare it to those who throw their money into mutual funds - expecting a safe (albeit smaller) ROI vs the crypto-currency or penny-stock subgroups.

It is constantly mentioned in this forum and on the podcasts, but BP'ers are looking for the singles and doubles of the market, not the home runs or grand slams.

@Llewelyn A. , again, I agree, that you can make money with the 2nd scenario, but you need deeper pockets, because there are many more moving parts.

And it doesn't look as if someone that's asking about 5% down has the funding that is necessary, if any of those zig, when he's expecting a zag. 

There are many ways to make profit in real estate, but not all correspond to someone's strengths and weaknesses and that's when investors get into trouble. 

I would again say that house 2 is based on speculation. Many speculator make fantastic profit. And many have failed fantastically. There's simply more risk. 

Originally posted by @Llewelyn A. :

@Stuart M.

Hi Stuart. I'll probably be one of the only few that will lean towards House 2 approach.

I've been buying houses in Brooklyn, NY for the last 20 years. It's your House 2 on steroids.

Results are incredible. Real Example:

Year 2000:

Purchase Price: $140k, $21k down and $7k Closing, $119k Mortgage

Rent: 2 Units at $500 each per month

Cash Flow: ZERO

Repairs: $40k

------------------------

Year 2017

Current Value: $1 Million

Profit if Sold: $1 Million minus $40k Repairs minus $21k down minus $7k Closing minus $80k Mortgage Balance minus $50k in Commissions minus $35k Seller's Closing Costs = $767k profit on $21k down plus $7k Closing plus $40k in repairs = $767k / $68k = 1,128% ROI just on Appreciation and Mortgage Reduction.

Current Rents are $1,850 for Unit 1, $1,900 for Unit 2. Cash Flow is approximately $2.5k per month

-----------------------

I started getting Cash Flow in Year 3 with the above property.

I used the Equity to Buy other properties. In fact, all other properties came from the Equity of the previous properties.

Some call it luck. I did this 8 times in 20 years. Virtually all properties are similar to this one.

I will say that I was also a highly paid Programmer when I graduated College in 1997 and didn't need the Cash Flow to put food on the table.

BUT, I will also say that if you don't need the cash flow, you can get into these kinds of lucrative properties.

You can't just do the numbers. You need to assess the long term effects of economics as well as other external scenarios like Climate Change.

I'm not sure about Boca Raton or where you are planning on investing finally.

Florida will deal with Rising Sea Levels, but 2017 was devastating in terms of Hurricanes. Prices will be in the next 30 years will depend on what Florida does to counteract Climate Change, if anything can be done. If anything, you will have to take into account higher increasing Hurricane Insurance over the future years.

That's also the beauty with doing a long term analysis. It makes you think of the future. I normally put together a 10 year projection and take into account all the effects of future Economics and other things like Climate.

Just like a Squirrel who has to put away nuts for the winter, if that little animal didn't think of the future, he'd starve to death before the Spring!  

 That is awesome appreciation. Over long periods of time this may happen. On the other end, we had the insanity market meltdown in 2007. I meet investors regularly that say they lost everything. Cash flow helps me to cover new roofs, insurance, taxes, etc which you didn't mention in your post. It takes money to run properties. If a buyer is lucky enough to have cash flow and some appreciation as well, that is the best scenario. Markets like the southern CA market are tough at best to find cash flow (if it even exists).

@Michaela G.

We both agree.

You are correct, Stuart may need deeper pockets. The way I like to say it is that he just needs a Partner if House 2 is a better deal using a more longer term metric like a 10 year pro-forma projection.

I think people put barriers up when it comes to partnering. I can understand that, but if you don't have people in your circle to mutually help each other where the investment is unreachable alone, I have to ask why haven't that person built up a network of trustworthy potential partners? After all, part of being a good Investor is building your team. Partners can certainly enhance that.

I've also known Cash Flow investors to fail fantastically too. Sometimes in surprising ways.

One in particular, let's call him Bob (not his real name).

Bob lived in NYC but invested in Bristol, CT. in 2004. He was making around $1k per month cash flow.

Bob rented an apt here in NYC where his rent in 2004 was around $2k per month.

What Bob didn't realize was that the future of the apt he rented was going to eventually go up to $4,600 today.

However, his investments in Bristol remained the same cash flow.

Unfortunately for Bob, he couldn't afford to continue renting at $4,600.... despite making $1k in Cash Flow in Bristol.

It wasn't until now that he realized that had he actually bought the apt he lived in and rented in 2004 for about $1 Million, he would have actually made about a $ Million more in appreciation and limited his rent to a fixed rate mortgage where the Mortgage Balance would be about 60% of what it was back in 2004.

Bob had to move to a lower priced area in NJ. He became priced out of NYC, a City that he really loved.

Bob's story is real. In fact, it's a story I know well from relatives that did similarly. I would say around 30% of my family who sold their property and moved to Florida in 2003 cannot now move back because the house they sold went up much higher than their current property in Florida.

Every time my family comes back to visit Brooklyn, they come to see the property they sold, for sentimental value, but they really regret it. The neighborhood had changed dramatically for the better like a lot of NYC neighborhoods. They didn't really know. But part of that was not understanding or attempting to understand the future.

Back then, when I was asking them to let me manage their property instead of selling it, they never anticipated that the price of their home would move up from $230k to over $1 Million.

When the hurricanes kept coming and they realized that one day they may want to move back, they asked me to price their former home. When they found out the current price, they were in sticker shock.

They also realized that they had become priced out.

BTW, the property my family sold was not a luxury home. Far from it. It was a tiny home, just 1500 sqft and needed some repairs and cosmetic work.

I think people see how much homes rise in NYC and SF and some other cities and they think it's speculation. From my experience, I would say it's more of protecting your future if you wanted to live in a particular location that can rise dramatically over decades.

I've also known people to who bought cash flowing properties prior to the Financial Crisis that went into foreclosure. One Investor, Sam, had properties in Sarasota County, FL. He had renters, but his rental was a bit dated, around 10 years old. His tenants found another house that was brand new and cheaper rent as the Market Crashed and some new construction were forced to lower asking rents.

Sam lost his tenants and just couldn't find another to replace them. After 6 months, he couldn't afford to carry several of his properties and went into foreclosure.

I think what we have to remember is that in the Financial Crisis, not all high priced homes failed as well as not all cash flowing properties survived.

Due to extremely high demand for my properties in Brooklyn... I survived without even much of a bump.

Just something to think about.

In the long run, how many properties could you purchase if they dont cash flow positively? Answer: only as many as your W2 income can qualify you for and can pay for maintenance et,. 

How many properties could you buy if they cash flow well? Answer: basically, as many as you can fund the downpayment on. This will be many more than in the previous scenario.  

Option #2 makes no sense to any investor:

I am going to park $500K into an asset that gives me nothing in return.  So in 30 years It wont even double in value. Meanwhile, things, break, you have vacancy, etc.  Lastly, in 30 years the property won't be worth that much unless improvements are done (roof, furnaces, kitchen, upgrades, etc). There is a real opportunity cost in doing this "mythical" investment and ongoing costs. You might as well buy gold bars, silver, and wheat)

You consider even less effort can be placed in the an Index Fund for the S&P, Dow, Nasdaq, Muni Bonds, Heck even a Money Market Fund, and my money would be liquid, and gain way more money.  I could buy a Life Insurance Policy that could quadruple in value in that same time frame, and becomes liquid in 10 years. Thats passive investing.

Or I could become an active investor in a management group and buy a franchise. If Option #2 was for 4x-6X increase that is different also I'd take that bet (like a new transit point is being built and this property is near it). To consider the stock market will double every 10 years historically its a much easier investment.

Now if your argument was buying 20 acres of woodlands on undeveloped land on the edge of town thats a different ball game.

Originally posted by @Llewelyn A. :

@Stuart M.

Hi Stuart. I'll probably be one of the only few that will lean towards House 2 approach.

I've been buying houses in Brooklyn, NY for the last 20 years. It's your House 2 on steroids.

Results are incredible. Real Example:

Year 2000:

Purchase Price: $140k, $21k down and $7k Closing, $119k Mortgage

Rent: 2 Units at $500 each per month

Cash Flow: ZERO

Repairs: $40k

------------------------

Year 2017

Current Value: $1 Million

Profit if Sold: $1 Million minus $40k Repairs minus $21k down minus $7k Closing minus $80k Mortgage Balance minus $50k in Commissions minus $35k Seller's Closing Costs = $767k profit on $21k down plus $7k Closing plus $40k in repairs = $767k / $68k = 1,128% ROI just on Appreciation and Mortgage Reduction.

Current Rents are $1,850 for Unit 1, $1,900 for Unit 2. Cash Flow is approximately $2.5k per month

-----------------------

I started getting Cash Flow in Year 3 with the above property.

I used the Equity to Buy other properties. In fact, all other properties came from the Equity of the previous properties.

Some call it luck. I did this 8 times in 20 years. Virtually all properties are similar to this one.

I will say that I was also a highly paid Programmer when I graduated College in 1997 and didn't need the Cash Flow to put food on the table.

BUT, I will also say that if you don't need the cash flow, you can get into these kinds of lucrative properties.

You can't just do the numbers. You need to assess the long term effects of economics as well as other external scenarios like Climate Change.

I'm not sure about Boca Raton or where you are planning on investing finally.

Florida will deal with Rising Sea Levels, but 2017 was devastating in terms of Hurricanes. Prices will be in the next 30 years will depend on what Florida does to counteract Climate Change, if anything can be done. If anything, you will have to take into account higher increasing Hurricane Insurance over the future years.

That's also the beauty with doing a long term analysis. It makes you think of the future. I normally put together a 10 year projection and take into account all the effects of future Economics and other things like Climate.

Just like a Squirrel who has to put away nuts for the winter, if that little animal didn't think of the future, he'd starve to death before the Spring!  

 I wish I knew where I could average 12%+ per year over the next 17 years! But my scenario was with 2% appreciation, I'm not speculating on above average appreciation in this example (which I fully admitted would make House 2 even better) because I don't have any special insight as to where this area would be.

If you didn't live in Brooklyn, would you have invested there?  For example, you'd have to be crazy to invest in New York right now because of climate change and hurricanes.  Or California 10, 15 or 20 years ago because of wildfires and earthquakes!  I guess what I'm trying to say is, natural disasters happen everywhere.  I will have to be comfortable with the risk over the next 30 years - and mainly the risk to the price of the house (which could decline based on insurance costs.)

Though I wouldn't buy a house in any area that would be susceptible to projected sea level rise in the next 30 years.

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