sacrifice cash flow for a better neighborhood

General Real Estate Investing
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sacrifice cash flow for a better neighborhood

Michael Beninati
Investor · Charlotte , NC · Member since 2013 · 19 posts · 11 votes

Hi,

I am new to investing. My business partner and I recently bought a duplex for 39,000 cash which should make about 1400.00 in gross rental income per month, which we feel good about. Our plan has been to buy low which means buying in lower income neighborhoods to maximize cash flow.

My neighborhood is quite established and is currently experiencing a growth spurt with a large mill being renovated to apts and retail, at least 2 other large scale apt/condo projects under construction. The light rail is also scheduled to be in operation in 4 years providing commuter transportation downtown.

We have the opportunity to buy a house listed for 133000 in a great location in this neighborhood. We could probably cash flow about 200.00 /month conservatively. This house is renovated to the point where we could get renters in immediately, complete with appliances, and in a highly rentable area.

I know you're not supposed to gamble on future appreciation, but there are barely any houses available in this price range, the location could not be much better, and the yard is fenced and large.

I was hoping to get some experienced investor opinions regarding the concept of receiving less cash flow( but still positive), for the potential of a huge increase in value not so far down the road.

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  • Jean BolgerPro Member
    Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
    12y

    I can't give any specific opinion without knowing your area, obviously. A lot of voice is given to the "don't bet on appreciation" idea here on BP, and I think 95% of the time that's good advice. However, what you're describing sounds like a situation where you might be in that other 5%. ( I've had the luck of buying in gentrifying areas, and have profited from it- that's really how I got to the point of being able to invest in cashflowing properties)

    It doesn't sound like this is too much of a risk (assuming you are fully accounting for all expenses in your numbers, not just rent minus PITI), or would require too much time and or money to get into. If you can afford it without losing too much momentum on your other investing it might be worth going for.

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  • Andy Robison
    Investor · Kansas City, MO · Member since 2013 · 465 posts · 170 votes
    12y
    Is that cash flow after debt service or before?
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  • Kyle B.
    Highland, IN · Member since 2012 · 253 posts · 36 votes
    12y

    @michael beninati,

    Nothing wrong with investing with the idea of appreciation. I think the most important thing is to have a long term perspective. I would never purchase a fix and flip and hope I get to my targeted ROI due to market appreciation, but it is definitely something to consider when you expect to hold the property for a long time. I don't know anything about your target market, but investors purchase real estate all the time for long-term appreciation without much concern for cash flow. I'm thinking of extremely well developed and desirable areas such as Manhattan and certain areas of Chicago where I'm from. I doubt your market is comparable to these though, so it's important you have a strong "thesis" for market growth where you're looking to purchase. Essentially it comes down to investment objectives - if your goal is not immediate cash flow and you're bullish on the market then I think you could definitely justify that purchase.

    Hope this helps.

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  • Michael Beninati
    OP
    Investor · Charlotte , NC · Member since 2013 · 19 posts · 11 votes
    12y
    Originally posted by @Andy Robison:
    Is that cash flow after debt service or before?

    I think so. I mean after mortgage, ins, etc, I'm estimating about 200.00.

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  • Michael Beninati
    OP
    Investor · Charlotte , NC · Member since 2013 · 19 posts · 11 votes
    12y

    Thanks Jean and Kyle. I do have a good feeling about the property and the neighborhood. I've actually lived here for almost 5 years, but alot of the development I always expected to see really seems to be taking off in the last 4-6 weeks. Just today I saw another large building being demo'd, which will surely be replaced with something. The financing would be optimal for this as well as it's a homepath property. One thing we are not wanting to do is tie up all our cash in any purchase. This is a low down payment and we can also finance any repairs which makes it more of an attractive opportunity for us.

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