What are some Appreciation strategies?

Question

What are some appreciation strategies when it comes to buying for appreciation?  I never thought about buying for appreciation until I listened to the recent Webinar from RWN. In that webinar the presenter was selling a strategy that was basically:

1) Have a bunch of low cost cashflowing realestate

2) Buy one or two pieces of real estate that are "likely" to appreciate. Ideally those should cashflow.

3) In 5 years, sell  the appreciated assets to pay for the high cashflowing ones and live off the cashflow from that. Or alternatively buy sell them off to buy more cashflowing assets.

What does people think of this strategies? What other strategies do people use when it comes to appreciation?

Frank Wong · Answer

Hi Wei Jie,

The strategy can work as long as you have positive cash flow and deep reserves to sustain you through different cycles of the market. It also depends on when you buy for appreciation.  Something to always remember appreciation is not a given and markets can go flat and go down. People forget that.  5yrs is not enough time for this strategy.  Think more in the range of 10-15yrs to exit.

I think one thing investors forget to think of is the negative cash flow that appreciation play has. You must be willing to stomach the loss and have the time to do it.  Taking a negative $1,000 a month loss is painful.  That is real money leaving your bank account. How long can you stomach the pain before your exit? Will you capitulate before your exit window?

I buy for cash flow first in markets that are strong and growing.  The appreciation is the icing on the cake.