Let me know your thoughts on this statement: A vacation rental property could have negative monthly cash flow but it could appreciate at a high rate in which case it would still be a good deal for a long term investment.
I can’t seem to find many properties that have a huge monthly cash flow return but I have found some that pay for them selves and make a small amount of cash each month but the property values appreciate over time and thus make the investment still a good investment. Has anyone else found this to be the case?
There's no way you can guarantee that appreciation. What is guaranteed is that you will be feeding this house cash month after month. Are you ok with that?
@Aaron Wade makes sense. So investors tend to go for the cash flow properties as the cash is more or less stable vs relying appreciation which can be a gamble
@Michael Otoole Relying on appreciation is always a gamble. You can find better odds in some areas than others, but there is never, ever a guarantee of appreciation.
A vacation rental should absolutely have a significantly higher cash flow than a long-term rental - the amount of money and time invested in a VR is much higher than a LTR, and cash flow should increase accordingly; if it doesn't, move on to another investment, because what you're looking at isn't a good one.
I have four VRs that cash flow like mad; it can most certainly be done, you just have to find the right market.
@Michael Otoole Check out this BP article on some of the concepts I went thru when looking at low cash flowing VR's. Basically there are other anciliary benefits to still owning the VR even if it's low cashflow...just so long as it's not going to completely drain your operational funds. As everyone mentioned though, don't bet on appreciation...it's pure speculation.
I think cash flow vs appreciation and debt pay off is a tricky question and really depends on your reserves and income. It is all about your comfort zone. If you can afford to break even on a property hoping for appreciation that is an individual decision. I would not do it. It is speculative. But then again, I wouldn't buy a property just for a couple hundred dollars cash flow in an area that won't appreciate either. Being a landlord can be very difficult and take a lot of time and resources. After you own a home for several years you will have capital expenditures no matter how well you take care of it. I would need to see both cash flow and be in an area that sees appreciation to feel comfortable buying in this market. Neither of which are easy to find at the moment in my area.
@Julie McCoy thank you!! What markets are your VRs in?
@Jon Crosby so helpful!!!
@Michael Otoole You're welcome! Mine are by the Smoky Mountain National Park in Tennessee (Pigeon Forge/Gatlinburg/Sevierville) - hugely popular tourist destination that's been a mecca for vacation rentals for decades. There's enormous demand and property prices are still low enough to make great cash flow. I used mine to quit my W2 job and now I occupy my time helping other investors get started in the area. :) And they're easy to self-manage, even long distance (I lived in Los Angeles when I bought mine) so no big chunks of profit going to PMs.
@Julie McCoy interesting. On my air dna software - that market shows as the most profitable. How did you find your first property? Did you go visit?
@Michael Otoole I bought all of my properties there sight unseen. I did do an initial visit to the area when I was nearby visiting family (I'd been as a child but not in many years), but didn't buy anything I saw on that trip. @Avery Carl was my agent (I'm now a member of her real estate team), and she's an expert in the area and long-distance self-managing - she and her husband @Lucas Carl hooked me up with everything (and everybody!) I needed to know. I did visit each property after closing to make sure it was set up to my liking and get first-hand knowledge of it, but there are plenty of successful owners who don't even do that. The first cabin went so well I bought a second one four months later, and a third a few months after that!