Investor · West Palm Beach FL · Member since 2024 · 66 posts · 25 votes
If you have $100k to invest and put as a down payment, would you get 1-2 places that have a Cash on Cash (COC) of $500+ a month but no appreciation, or 1 place with a 5-8% appreciation each year but you break even or lose $200-300 per month on the mortgage by renting out? (because you put 20% or 15% down instead of 25%)
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
Assuming you’re going to need to put 25% down on any entail purchase I would MUCH rather have 1 $400k home than 2 x $200k homes. You’re not going to have 1/2 the headaches/capex/maintenace/vacancy, etc etc. You’ll have 1/3rd or less.
This is disregarding the fact that 5-8% (let’s call it 6.5%) of $400k for appreciation is a $26k/annual profit versus $6k on your cash flowing home. I’ll say it again. If you NEED cash flow to invest in real estate you’re not ready. Per home it goes away with one ac unit, or new roof, or a month of vacancy at each property, especially with unit turns.
Using your "cash flow" example. Put the $100k in a GUARANTEED bank CD and make $5,775 instead of having a chance at $6k if nothing breaks and nobody leaves. If your COC doesn't exceed 10% and you expect zero appreciation you're taking too much risk for a little more return.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
2y
@Bob Asad, Bill outlines it pretty well. There are risks and rewards to each. But your goals, timelines, etc are not outlined at all.
Common issues I see on these forums: everyone thinks they are getting a little cash flow, but over the long term, they are a) not getting as much as they underwrite and/or b) typically hurting long term value by creating cash flow through deferred maintenance.
As for which is better, for me, who doesn't need the cash flow, I would rather have appreciation all day long. It will get me where I want to be far faster. But the reality is, you can't assess these both in a vacuum and say one is one and the other is the other. There will be times where you have cash flow in your appreciation play. There will be times where you have no cash flow/negative cash flow in your cash flow play. And appreciation could be anything over the next 5-10-20 years.
But the biggest takeaway is, if you are only making 6% returns in cash flow and you are not assuming any appreciation, I would buy a money market today. While this isn't common, I have know people that bought their first rental and when tenant moved out, had caused close to $20k in damages and skipped town after one year of living in place. So there goes all your cash flow and then a lot more.