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Tyler D.
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For long-term investing, is cashflow or appreciation better?

Tyler D.
Posted Nov 24 2020, 20:14

I'm not sure of what my opinion is on this, and would like to see what others think on the matter.

Here on BP, the mass majority of advice and articles are focused on cashflow. I see the obvious benefits of cashflow, which are the following:

  • 1) Safer in the case of a downturn. Even if property values tank, people still need a place to rent and rents may even go up.
  • 2) You can easily access the returns from cashflow, and potentially live off of cashflow passively.
  • 3) Since cashflow returns are immediate, you can reinvest those returns quickly as opposed to value locked away in equity.
  • 4) Cashflow properties are often cheaper, meaning a lower barrier for entry.
  • 5) You don't have to worry about buying at the wrong time, as you are profiting immediately.
  • 6) Predictable. You don't know for sure whether a market will appreciate or not, but you can see pretty clearly what will cashflow.

On the flipside, the benefits for appreciation:

  • 1) Higher property values, meaning you can invest more $ with less properties acquired, less time spent buying/managing/maintaining.
  • 2) Maintenance costs, and sometimes taxes, are proportionally lower in a more expensive house. 10 new roofs on a $40k house will cost a lot more than 1 roof on a $400k house.
  • 3) Loans are easier to get and better interest rate. Most banks won't even consider a $40k property, and the few that will charge higher rates or huge origination fees. You can invest more $ into real estate before hitting your 10 conventional loan limit.
  • 4) Tend to be in more desirable areas, meaning lower chances for bad tenants. Also higher chances for rent/ property value growth in the future. Most appreciation markets tend to be in areas with positive growth, whereas many cashflow markets are depressed and losing population and jobs.
  • 5) Though you may not cash flow immediately, after held for long enough it likely will, and will possibly even surpass an equal value of cashflow from cashflow properties.

I think that both make sense for different reasons, with cashflow markets being better for those who are just getting started, and those who want to aggressively scale up using the cashflow from previous properties to buy new ones. Appreciation markets seem like they would favor a more passive investor who can afford to buy and sit back for a decade or two, using the investment as a supplement to their primary income. 

I currently own property in a cashflow market, and am looking at picking up some properties in a mixed market before potentially moving into appreciation. I'd love to hear your thoughts on this complex topic.

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