Is investing based on appreciation a recipe for disaster?

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Is investing based on appreciation a recipe for disaster?

Golan Corshidi
Rental Property Investor ¡ Cleveland, OH ¡ Member since 2018 ¡ 100 posts ¡ 61 votes

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? 

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Russell BrazilBusiness Member
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Real Estate Agent ¡ Washington, D.C. ¡ Member since 2012 ¡ 17k+ posts ¡ 30k+ votes
2y

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.

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  • V.G JasonPro Member
    Investor ¡ Member since 2022 ¡ 3k+ posts ¡ 3k+ votes
    2y
    Quote from @Brandon C.:
    Quote from @Dan H.:
    Quote from @Brandon C.:

    Cash flow is king in business! 

     King if your goal is only to pay the bills. 

    I question whether there is any RE investors who have made at least $1m in RE that did not make the majority via appreciation.  I double question if there is any RE investor that has made $10m in RE that has not made the majority via appreciation.  

     I do not know what king means to RE but Appreciation is where the real wealth is created.  For proof, try to find a residential syndication that does not have an appreciation play.  If you find one (which I doubt), see how long it takes to obtain their LP funding goal.  Cash flow without appreciation cannot meet the LP profit expectations.  This is because appreciation is the process source.  

    My lowest appreciating property has appreciated $2700/month over its hold.  My lowest appreciating unit has appreciated over $1400/month over its hold.  I have 3 properties that have appreciated over $10k/month over the hold and one of those is over $20k/month ($5k unit per month).  No way to obtain these returns this via cash flow alone.  

    Best wishes


     I guess we will have to wait out the recession/depression setting in to see who is right. Lol.


     The one's that understand how the money works will be the one's bidding during a recession. The one's checkboxing $100/mo in rent as a positive investment solely for that purpose will be the one's tapping out. 

    1Reply
  • Michael Haynes
    Member since 2019 ¡ 55 posts ¡ 9 votes
    2y

    Hello Golan Corshidi. Do you know what a boat is? "It's a Hole in the Water that you Pour Money Into." Here in Florida the oldtimer's will warn you, "Not to Buy a Gator!" If, you convoluted Plan don't work out, "What is Your Plan B?" 

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  • Bryan H.
    Member since 2021 ¡ 54 posts ¡ 26 votes
    2y
    Quote from @John Mason:

    My property is on a barrier island where it appreciates almost 10 percent for past 10 years..I would think that give or take it would do so next 5 years and I would use it to buy other properties

    I think people should read John Schaub books more:)

    What barrier island is that? I know of one barrier island where it may show 10% appreciation over the last 10 years, yet prices still have not recovered from their peak way back in 2003. One theory is climate change and sea level rise is being priced into the market, perhaps moreso going forward. I guess point being, long term appreciation is not guaranteed in any market and depends on the hold period. Investing returns on barrier islands could be one significant definitive scientific report, one hurricane, or the last insurer pulling out, from dropping off a cliff. 😬

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  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Brandon C.:

    Cash flow is king in business! 


    Cash is King

    Cashflow is Queen

    Leverage is a Peasant 

    Jokes lol

    Leverage is a good Peasant if you know how to put it to work 🤓

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  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Andrew Lax:
    That holds true with any deal - all I am saying is cash flow is a bit more predictable than appreciation assumptions ...  We could easily be in a long period of stagnant appreciation.. wouldn't be the first time.. 

    I would not look at the previous 15 years and think the market will continue with double digit appreciation or you may be setting yourself up for a big disappointment. 

    and agree, good thread... 


    36 years of age and lived a life that some wouldn't in 3 lifetimes lol

    Travelled the world and experienced many cultures.

    Experienced some amazing things and moments/memories that I will cherish for as long as I live.

    Each to their own but monthly cashflow was able to provide this for me.

    Be it from rentals, flipping or our PM business.

    Yes, worked hard for it but IMO nothing can beat "hard work".

    Building equity and waiting for appreciation is all good and great for those that want to wave their D@#% and say "look how big mine is".

    Then passing it on to an entitled/spoilt $#%@ of a child hehe that will take it for granted and most likely loose it.

    Personally, I'd rather enjoy life as much as I can and live for moment.

    Teach my kids how to fish and not just give them the fish.

    Cashflow provides opportunities for those "moments/memories" TODAY and not in 10 years.

    Isn't real estate investing suppose to make our life more enjoyable and better in the present moment?

    Time flies and before we know, it will all be gone.

    Just my opinion and much success to everyone
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  • Nicholas L.Pro Member
    Flipper/Rehabber ¡ Pittsburgh ¡ Member since 2018 ¡ 6k+ posts ¡ 5k+ votes
    2y

    @Engelo Rumora

    yes it's a good point.  and you have made the point in multiple threads that in general you need a portfolio to succeed which i appreciate.

    buy one property, do one flip, buy one stock, etc. - that is high risk, anywhere it's done.

    have 10 properties?  20 properties?  50 stocks?  now you're diversified.

    and certainly if you have a solid 20-property portfolio in Ohio, you're probably cash flowing quite a bit especially if you purchased when rates were low. 

    2Reply
  • Brandon C.
    Real Estate Investor ¡ Milwaukee, WI ¡ Member since 2017 ¡ 25 posts ¡ 9 votes
    2y
    Quote from @Engelo Rumora:
    Quote from @Brandon C.:

    Cash flow is king in business! 


    Cash is King

    Cashflow is Queen

    Leverage is a Peasant 

    Jokes lol

    Leverage is a good Peasant if you know how to put it to work 🤓


     Yes, I totally agree!

    0Reply
  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Brandon C.:
    Quote from @Engelo Rumora:
    Quote from @Brandon C.:

    Cash flow is king in business! 


    Cash is King

    Cashflow is Queen

    Leverage is a Peasant 

    Jokes lol

    Leverage is a good Peasant if you know how to put it to work 🤓


     Yes, I totally agree!


     
    Granted, it’s not easy and almost impossible to invest with only cash. So leveraging does have its place indeed, but in my opinion, many investors should wait longer and become more experienced before getting into debt.

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  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Nicholas L.:

    @Engelo Rumora

    yes it's a good point.  and you have made the point in multiple threads that in general you need a portfolio to succeed which i appreciate.

    buy one property, do one flip, buy one stock, etc. - that is high risk, anywhere it's done.

    have 10 properties?  20 properties?  50 stocks?  now you're diversified.

    and certainly if you have a solid 20-property portfolio in Ohio, you're probably cash flowing quite a bit especially if you purchased when rates were low. 


    Thanks mate, I was able to force my achievements in a very hard-working,  unsophisticated and through a lot of sacrifice away…

    To be honest, I wouldn’t recommend others choose the same path.

    I think there are a lot of competent, more successful, and much more experienced folks posting on this thread than myself.

    They have achieved better success in a more elegant and less backbreaking way than I have 🙏👍

    With that said, my points are always stressed around “You can’t get something for nothing” and the folks that want to use leverage think it’s quicker and easier.

    That’s the “something for nothing” approach in my opinion

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  • John Mason
    Member since 2024 ¡ 1k+ posts ¡ 351 votes
    2y

    Actually leverage investing for appreciation would be the longer game usually:) To each his own

    0Reply
  • Michael Haynes
    Member since 2019 ¡ 55 posts ¡ 9 votes
    2y

    Hello Golan Corshidi. Your basic question, "Is investing based on appreciation a recipe for disaster?" is the same thing as "Trying to Get Blood from a Stone!" If the numbers don't work, "Give Up!" We used to base our Searches on the One Percent Rule. You had to be able to make at least 1% a Month in Positive Income from the total Money Invested. In Tampa I would get at least $100 per Door, before the fixups. The thing I always wanted to be, was a Horse Trader. In Real Estate that would apply to Buying and Selling Notes. Did no one ever tell you that your Profit is done, "When you Buy and Not When you Sell?" What happened to common sense? 

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  • Michael Haynes
    Member since 2019 ¡ 55 posts ¡ 9 votes
    2y

    Hello Golan, You can make 5.2% buying Monthly T-bills, the safest place to park your Money. If, you can't do that with Real Estate, then, "Forget About It!"

    0Reply
  • John Mason
    Member since 2024 ¡ 1k+ posts ¡ 351 votes
    2y

    Okay it is not the immediate return , it is the return on your money AFTER 5 years which is speculative but can be predicted or forced by adding value example a  new bedroom or bathroom etc

    0Reply
  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Michael Haynes:

    Hello Golan, You can make 5.2% buying Monthly T-bills, the safest place to park your Money. If, you can't do that with Real Estate, then, "Forget About It!"


    100% agreed here.

    And the only investment that I could ever find that is as "passive" as can possibly be.

    Just need a large enough bag parked at 5.2% and one can go to sleep lol

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  • Michael Haynes
    Member since 2019 ¡ 55 posts ¡ 9 votes
    2y

    Engelo Rumora, you can get up to 8% with Corporate Bonds and 12% with Covered Call ETF's. 

    1Reply
  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Michael Haynes:

    Engelo Rumora, you can get up to 8% with Corporate Bonds and 12% with Covered Call ETF's. 



    I believe in the long term success of the US economy more so than a specific company and it's bonds.

    Active investor for now and I predict the 30yr will come down quite a bit.

    But with a big enough bag, I'd take the 5% all day and go to sleep so to speak hehe
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  • Jorge VazquezBusiness Member
    Real Estate Broker ¡ Tampa, FL ¡ Member since 2017 ¡ 1k+ posts ¡ 693 votes
    2y

    Hey Golan,

    Over my 20 years in real estate investing, I’ve found that it’s crucial to pick a lane—either focus on cash flow or appreciation. This approach helps you stay focused and build momentum faster. If you need steady income to cover expenses and grow gradually, go for cash flow. But if you’re okay with waiting for bigger long-term gains and can handle some short-term risk, focus on appreciation. Trying to juggle both can spread you too thin and make it harder to achieve your goals. Ultimately, your decision should be based on your current income and financial flexibility. Also, make sure to stress test your finances, pay down principal on your loans regularly, and opt for long-term fixed mortgages. This way, you can better manage risks and adapt as your situation changes. It’s all about having a clear, focused strategy and sticking to it.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant ¡ Summerlin, NV ¡ Member since 2014 ¡ 45k+ posts ¡ 66k+ votes
    2y
    Quote from @Jorge Vazquez:

    Hey Golan,

    Over my 20 years in real estate investing, I’ve found that it’s crucial to pick a lane—either focus on cash flow or appreciation. This approach helps you stay focused and build momentum faster. If you need steady income to cover expenses and grow gradually, go for cash flow. But if you’re okay with waiting for bigger long-term gains and can handle some short-term risk, focus on appreciation. Trying to juggle both can spread you too thin and make it harder to achieve your goals. Ultimately, your decision should be based on your current income and financial flexibility. Also, make sure to stress test your finances, pay down principal on your loans regularly, and opt for long-term fixed mortgages. This way, you can better manage risks and adapt as your situation changes. It’s all about having a clear, focused strategy and sticking to it.


    agree paying down principal day one really saves you interest and the amount you would pay it down say a few hundred a month .. that money does nothing for increasing your holdings one just spends that on dining and a new pair of shoes etc.. then if you need to cut back on payment you can however you would be shocked to how much faster you create real equtiy.
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  • Michael Haynes
    Member since 2019 ¡ 55 posts ¡ 9 votes
    2y

    Angelo Rumora, What you believe means nothing. Long Term success in the US Economy being able to Grow in a Declining Globalist World requires waiting ten to forty years. Shorter term Investors searching Alpha or a Passive, positive return on their Money use one Year Corporate Bonds to pay the bills. What you predict with the 30yr Bond is the same thing as all the Banks, like Silicon Valley Bank, who Bought the Long Bond at 1.2% and then the Fed raised the Interest Rate. All of their Account Holders went to the Bank to Close their Accounts! Learn the lesson. You don't go Long when you have Short term obligations to pay. I concentrate on the Daily Market Movements. I Mico-scalp the S&P eMini for Ticks. A good day is $1000 or more, Trading for two hours in the mornings. A good day is any day you are Break even or Better. Close down End of Day and sleep well. With Directional Options on the SPY you Risk $100 to make $1000 until you have enough to Risk $1000 to make $10,000. My Buy and Hold Investment for 40 years was Real Estate. 

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  • Engelo RumoraBusiness Member
    Investor ¡ Toledo, OH ¡ Member since 2013 ¡ 4k+ posts ¡ 2k+ votes
    2y
    Quote from @Michael Haynes:

    Angelo Rumora, What you believe means nothing. Long Term success in the US Economy being able to Grow in a Declining Globalist World requires waiting ten to forty years. Shorter term Investors searching Alpha or a Passive, positive return on their Money use one Year Corporate Bonds to pay the bills. What you predict with the 30yr Bond is the same thing as all the Banks, like Silicon Valley Bank, who Bought the Long Bond at 1.2% and then the Fed raised the Interest Rate. All of their Account Holders went to the Bank to Close their Accounts! Learn the lesson. You don't go Long when you have Short term obligations to pay. I concentrate on the Daily Market Movements. I Mico-scalp the S&P eMini for Ticks. A good day is $1000 or more, Trading for two hours in the mornings. A good day is any day you are Break even or Better. Close down End of Day and sleep well. With Directional Options on the SPY you Risk $100 to make $1000 until you have enough to Risk $1000 to make $10,000. My Buy and Hold Investment for 40 years was Real Estate. 


    What I believe in means everything to me... 

    So you're a gambler then?

    I consider short term trading the same as gambling.

    I prefer investing long term. Be it stocks or real estate.

    If I want to gamble, I'll go to Vegas and loose quickly on the slots so I can have a cigar and enjoy a cocktail.

    Much success

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  • Ian IppolitoBusiness Member
    Investor ¡ Tampa, FL ¡ Member since 2015 ¡ 1k+ posts ¡ 1k+ votes
    2y
    Quote from @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? 

    Every investor will have a different answer to this question because every investor has a different risk tolerance, financial situation and set of financial goals. So strategy that is fantastic to one investor will be terrible to another and vice versa.

    As a conservative investor, I purchased my single-family rentals based only on the income/cash flow, because that is much more predictable. And anything else (i.e. appreciation) is extra and gravy. And of course there has been a lot of gravy over the last several years (which has been nice).

    On the other hand, every local market is different and some of them simply don't support cash flow investing. And personally I only do it in my local market as I have dealbreaking issues with relying on 3rd parties for key services in a remote market (and with, in my opinion, inadequate supervsion and lack of complete alignment). So I can also understand why some people disagree/do things differently.
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