How to find out that a property is going to appreciate or not?

Buying & Selling Real Estate
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How to find out that a property is going to appreciate or not?

Jasraj Singh
Member since 2020 · 295 posts · 56 votes

I want to know If buying a property how to find out if there is a good chance of appreciation in a property or place?

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Kenneth GarrettPro Member
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
6y

@Jasraj Singh

I believe you should rely on cash flow first.  Without cash flow the value of the property is only on paper.  If your strategy is to buy rent and sell in three to five years then appreciation would be a very important factor.  I don’t like the appreciation game as the sole strategy as it’s to reliant on the current market.  The virus today may decrease the value of the property which would restrict your sell option at least for now.  If you bought at zero or negative cash flow and relied on appreciation you could get hurt.  I would be cautious on only relying on appreciation.

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  • Joe Aiola
    Real Estate Agent · Fleetwood, NY · Member since 2018 · 264 posts · 235 votes
    6y

    @Jasraj Singh I think cash flow is more of a defensive strategy - appreciation is where you can build some real wealth.

    Homes naturally appreciate over time but, with that said, the amount of appreciation is very market & location based. Look at the home values over the years in the market you're interested in to get an idea. Talk to investors and agents in the area that you're looking at - they will be able to help you.

    1Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Jasraj Singh

    I believe you should rely on cash flow first.  Without cash flow the value of the property is only on paper.  If your strategy is to buy rent and sell in three to five years then appreciation would be a very important factor.  I don’t like the appreciation game as the sole strategy as it’s to reliant on the current market.  The virus today may decrease the value of the property which would restrict your sell option at least for now.  If you bought at zero or negative cash flow and relied on appreciation you could get hurt.  I would be cautious on only relying on appreciation.

    1Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Hi @Jasraj Singh.  I agree on cash flow as a priority.  Mark Twain reportedly said, "History doesn't really repeat itself... but it often rhymes" or something like that. A good indicator of the future is the past. If you want to find a property that will appreciate, try to buy when most are selling and in a panic.  That could be in about 2-3 years according to prior recessions. And try to buy in places that have massive swings (like FL, NV, AZ, and CA). And try to buy from sellers who are distressed (like banks and pre-foreclosures). Check out this graphic of Phoenix prices, but realize there are even better deals below the mean from the right sellers. And perhaps wilder swings in places like FL. 

    Podcast Guest on Show #533
    1Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    6y

    If you buy a property for $0 or as close to $0 as possible, you're almost guaranteed some appreciation. 

    You can increase your odds/chances of property appreciation by buying at the right price and right time in the right location.  

    1Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Account Closed:
    Originally posted by @Jasraj Singh:

    I want to know If buying a property how to find out if there is a good chance of appreciation in a property or place?

    If you want to get wealthy buy for cash flow.

    If you want to speculate buy for appreciation.

    thanks a lot man for the advice! I really appreciate it! As I'm just starting could you help me with some tips for cashflow? like when to buy and what is the right time or location to buy a property in? this would be really helpful

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Joe Aiola:

    @Jasraj Singh I think cash flow is more of a defensive strategy - appreciation is where you can build some real wealth.

    Homes naturally appreciate over time but, with that said, the amount of appreciation is very market & location based. Look at the home values over the years in the market you're interested in to get an idea. Talk to investors and agents in the area that you're looking at - they will be able to help you.

    Alright! thanks man! So as I'm starting so could you help me with some tips for cashflow? like what are the things we have to keep in mind when buying an investment property if we want positive cashflow? 

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Kenneth Garrett:

    @Jasraj Singh

    I believe you should rely on cash flow first.  Without cash flow the value of the property is only on paper.  If your strategy is to buy rent and sell in three to five years then appreciation would be a very important factor.  I don’t like the appreciation game as the sole strategy as it’s to reliant on the current market.  The virus today may decrease the value of the property which would restrict your sell option at least for now.  If you bought at zero or negative cash flow and relied on appreciation you could get hurt.  I would be cautious on only relying on appreciation.

     Absolutely! thanks for the advice man! So could you help with some tips for positive cash flow? like what do I have to do in order to get positive cash flow from the property? like checking rental rates and market values?

    0Reply
  • Raul R.
    Rental Property Investor · New York City, NY · Member since 2017 · 493 posts · 386 votes
    6y

    @Peter Johnson

    I had the same opinion starting out but what I’m learning is my wealth is building as my Properties appreciate I tap into the equity and increase my cash flow at the same time by taking advantage low interest rates. Cash flow helps you quit your day job appreciation builds wealth!!!

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Paul Moore:

    Hi @Jasraj Singh.  I agree on cash flow as a priority.  Mark Twain reportedly said, "History doesn't really repeat itself... but it often rhymes" or something like that. A good indicator of the future is the past. If you want to find a property that will appreciate, try to buy when most are selling and in a panic.  That could be in about 2-3 years according to prior recessions. And try to buy in places that have massive swings (like FL, NV, AZ, and CA). And try to buy from sellers who are distressed (like banks and pre-foreclosures). Check out this graphic of Phoenix prices, but realize there are even better deals below the mean from the right sellers. And perhaps wilder swings in places like FL. 

     That really is a great advice! appreciate it! But could you tell me how do you determine if a recession in near or is going to happen after 2-3 years?

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Paul Welden:

    If you buy a property for $0 or as close to $0 as possible, you're almost guaranteed some appreciation. 

    You can increase your odds/chances of property appreciation by buying at the right price and right time in the right location.  

     Definitely! thanks for the advice man!

    Appreciate it

    0Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Jasraj Singh

    Make sure you calculate all of your expenses. P&I, property taxes, insurance, maintenance, vacancy and capex. Check the market rates by using multiple sources such as; Zillow, Rentometer, Trulia, Hot Pads, apartments.com, MLS. Check the comps like a flip.

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Kenneth Garrett:

    @Jasraj Singh

    Make sure you calculate all of your expenses. P&I, property taxes, insurance, maintenance, vacancy and capex. Check the market rates by using multiple sources such as; Zillow, Rentometer, Trulia, Hot Pads, apartments.com, MLS. Check the comps like a flip.

    Definitely! thanks a lot man! Could you tell how do calculate your vacancy like if I'm going to buy a property I'll probably be vacant for a while like at least 2 weeks or could be a month and you're right I use zillow, loopnet, Costar but could you tell me what do you exactly look for while using MLS instead of market rates I need to know?

    thanks man

    0Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    6y

    Buy somewhere there is always going to be an employer or a university that won't go away.  Without those, you'll lose your tenant base and any potential profit.  This is all that really matters.  

    0Reply
  • Tyler D.
    Member since 2019 · 222 posts · 104 votes
    6y

    I have to disagree with the people who say that cashflow is more important than appreciation.

    My first property was a pure cashflow play, and while it will pay for itself in full after about 7 years from that cashflow, I don't expect it to increase in value.

    The average home price in that market was 70k in the year 2000. The average home price is less than 70k today. Assuming the trend continues, the house will continue to lose value.

    On the flipside, take a big city like Seattle.

    A house in Seattle won't cashflow well in the beginning. You might even lose money. 

    However, Seattle's home prices have gone from 250k to 670k in the past 20 years. The home bought at 250k was definitely cashflowing after some appreciation and rent increases, and now has an extra 420k of value. With leverage you could have put 20% down on 5 250k houses, and would now have 2.1million in profit just from the appreciation. That's a profit of 105k per year. 

    The downside is that appreciation is less consistent and you could buy at a bad time, and may actually lose money if the market slides.

    This is why I would stay away from both extremes and aim for something that has a healthy cashflow (enough to at least break even with, after all expenses), and a good potential for future appreciation.

    0Reply
  • Tyler D.
    Member since 2019 · 222 posts · 104 votes
    6y

    Nobody knows, and anyone who tells you they do is trying to sell you something.

    I grappled with this for a long time. I was waiting for the perfect time to buy in. The truth is that there is no perfect time and it is possible that the market could crash tomorrow, or it could crash in 100 years.

    Instead of trying to time a recession, evaluate whether or not something is a good price RIGHT NOW. If I find a property that cashflows well and is a good price, I don't care about the short-term fluctuations of the market. I'll buy it.

    A good analogy would be going to the grocery store. If you want a steak, you're not going to wait and try and check the grocery store every day for the perfect price. You're going to buy a steak right now at a reasonable price, and if the steak goes on sale in the future, you buy as much as you can and stick it in the freezer. But you shouldn't wait forever for the perfect sale, because it may never come. 

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Account Closed:

    Buy somewhere there is always going to be an employer or a university that won't go away.  Without those, you'll lose your tenant base and any potential profit.  This is all that really matters.  

    Right! Thats a great advice!

    Appreciate it! 

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Tyler D.:

    Nobody knows, and anyone who tells you they do is trying to sell you something.

    I grappled with this for a long time. I was waiting for the perfect time to buy in. The truth is that there is no perfect time and it is possible that the market could crash tomorrow, or it could crash in 100 years.

    Instead of trying to time a recession, evaluate whether or not something is a good price RIGHT NOW. If I find a property that cashflows well and is a good price, I don't care about the short-term fluctuations of the market. I'll buy it.

    A good analogy would be going to the grocery store. If you want a steak, you're not going to wait and try and check the grocery store every day for the perfect price. You're going to buy a steak right now at a reasonable price, and if the steak goes on sale in the future, you buy as much as you can and stick it in the freezer. But you shouldn't wait forever for the perfect sale, because it may never come. 

     Thats a great advice man! Thanks a lot! I really appreciate it!

    0Reply
  • Joe Cassandra
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y

    I disagree with some of the folks here. 

    Talked on FB with a local investor around Atlanta, and she would buy up homes around new developments. It didn't happen overnight, but her properties would appreciate as demand for the new builds grew. 

    I go into a purchase with "I buy at a discount and I get immediate equity. I DO NOT expect this house to appreciate $1, and I'll be fine."

    Not to say you can't speculate. 

    But you have to get some deep pockets and be ready to sit on your hands for a few years.

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Joe Cassandra:

    I disagree with some of the folks here. 

    Talked on FB with a local investor around Atlanta, and she would buy up homes around new developments. It didn't happen overnight, but her properties would appreciate as demand for the new builds grew. 

    I go into a purchase with "I buy at a discount and I get immediate equity. I DO NOT expect this house to appreciate $1, and I'll be fine."

    Not to say you can't speculate. 

    But you have to get some deep pockets and be ready to sit on your hands for a few years.

     Yes! thanks a lot for responding man!

    appreciate it! 

    0Reply
  • Brian Bagdasarian
    Investor · ME · Member since 2020 · 40 posts · 32 votes
    6y

    There's a reason why deals (5+ doors) are underwritten based on cashflow, rather than future value.

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Brian Bagdasarian:

    There's a reason why deals (5+ doors) are underwritten based on cashflow, rather than future value.

     Alright! thanks for responding man! appreciate it

    I'll focus on cash flow!

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Hi @Jasraj Singh.  You asked how to tell if a recession is coming.  That would take a lot of discussion, but I would highly recommend you Google Howard Marks of Oaktree Capital and see what he writes about cycles and recessions.  If you have time, I would read his book "Mastering the Market Cycle." I'm in my 2nd read-through and it is amazing. When buyers get euphoric and ignore risk, at the time when assets are most risky, you know it is time to get out. 

    Podcast Guest on Show #533
    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    6y

    I want both: cash flow and potential appreciation. 

    My 1st criteria is that it has to be within 15-20 minutes of where I live (I self manage).

    2nd is close proximity to some upcoming development. I'm only going to be a landlord for a few more years and am not interested in getting cashflow for 3 years, but no appreciation. 

    3rd criteria is cash flow, within the areas that fit the 2 initial criterias. 

    It has worked well for me so far

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Paul Moore:

    Hi @Jasraj Singh.  You asked how to tell if a recession is coming.  That would take a lot of discussion, but I would highly recommend you Google Howard Marks of Oaktree Capital and see what he writes about cycles and recessions.  If you have time, I would read his book "Mastering the Market Cycle." I'm in my 2nd read-through and it is amazing. When buyers get euphoric and ignore risk, at the time when assets are most risky, you know it is time to get out. 

     Thanks a lot! I really appreciate it! I'll definitely read that book!

    0Reply
  • Jasraj Singh
    OP
    Member since 2020 · 295 posts · 56 votes
    6y
    Originally posted by @Michaela G.:

    I want both: cash flow and potential appreciation. 

    My 1st criteria is that it has to be within 15-20 minutes of where I live (I self manage).

    2nd is close proximity to some upcoming development. I'm only going to be a landlord for a few more years and am not interested in getting cashflow for 3 years, but no appreciation. 

    3rd criteria is cash flow, within the areas that fit the 2 initial criterias. 

    It has worked well for me so far

    That's great! thanks a lot for the advice!

    I'll definitely look into that

    0Reply
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