Appreciation or Cash Flow, Or Both?

Question

Newbie REI, I am looking at rental properties in an area that will typically cash flow $200-300, with an ARV of $85-115K, but appreciation will not be all that great. I can pay cash for these properties and refi after the rehab of 1-3 mths. Or should I focus on another county that has better appreciation that cash flows $100-200. These properties have an ARV of $150 plus and I would be using conventional lending from the beginning. As a REI, which one in your model works best for you Appreciation, Cash Flow, or Both?

Eric Mayer · Answer

Both. Buy fixer uppers and you can force appreciation.

Donny Long · Answer

Thanks Chris!

Hai Loc · Answer

Its nice to have both. Appreciation helps your net worth more where as cash flow gets you closer to financial freedom, in other words the number you need every month to pay for your lifestyle. Appreciation can only be unleashed upon a sale or refinance. Cash flow pays for your bills and will eventually set you free from your 9-5 or whatever work you have..

Chris Coleman · Answer

@Donny Long most RE investors here invest primarily for cash flow.  Cash flow is real money in your bank account.  Hoping for market appreciation is a risky game.

With that said, going to low on the value of properties and your also taking on risk in the cash flow, because lower end properties will have more maintenance issues, less reliable tenants, and higher turnover.  So while your cash flow may be $200-$300 per month on paper, in reality all the issues are costing you money such that your actually only netting $150-$200 per month.

So finding a middle ground, where you can achieve healthy cash flow of at least $200 per month, with a property that is at mid-level value for its market is a good income generating, lower risk approach.