Is investing based on appreciation a recipe for disaster?

[Golan Corshidi]

One of the most common topics discussed on bigger pockets and other real estate forums is the decision between a property that cash flows and one that has the potential to appreciate. 

To take this further, I recently tuned in to the Bigger Pockets podcast and one of the featured guests proudly stated that they are negative cash flow but that's fine because the property is expected to appreciate in 10+ years. I know this is an extreme example but the framework is there.

I don't think making an investment decision based solely on predictions of the future is a wise decision. Some markets may not cash flow that well and I get that but to say that it's okay to be in the red for multiple years because you have underwritten the market and know values will go up sounds crazy to me.

I have only done a few deals to this point so maybe I am missing something but I would love to hear your thoughts on heavily weighing appreciation as the decision to move forward with a deal even when negative cash flows are the most likely short-term situation. 

Do you invest solely based on appreciation? If so, why? 

[Russell Brazil]

Any property in the major coastal cities leveraged at 75% ltv would be cash flow negative.  Yet those are the cities that are going to make you rich, and pretty quickly. 

Remember the higher the cap rate, the higher the cash flow, means the higher the risk. This is a fundamental rule to finance. The low risk markets, with low cap rates are that way because they are high demand and appreciate quickly.