BP Poll: Are you in it for the cash-flow, appreciation or both?

63 Replies

Im curious as to which strategy everyone is after these days. I realize this is a very location sensitive post so if you could provide your primary investing area it would be extremely helpful. I feel most newbies (such as me) are too focused on the monthly cash-flow, AKA the monthly number that allows us to quit our beloved day jobs, while the true wealth is generated slowly from the leveraged investment appreciation.  

Definitely cash flow!!!!!

Maybe my definition of "true wealth" is different than yours but to me appreciation is just considered a bonus in my book. Even if my properties go down in value I will still have the cashflow.

Cash flow and mortgage principal reduction. I do not assume or expect any appreciation, however with a decent cash flow and regular payments I know that at the end of the mortgage term, I will have an asset with positive value ( may be lower, equal to or higher than its current cost, but will never become zero), and no debt. And an accumulated cash flow for X years. Anyone who lived through the crash will tell you that appreciation is not something you want to take for granted... I still owe more on my primary residence than it is worth, and I bought it in 2008 with 20% down.

Ca$h flow. Forced or regular appreciation (or inflation) is just a bonus.

In the beginning, properties were acquired for appreciation, several didn't cash flow well, it was all more about selling 3/4 years later as if it was a savings account. Some cash flowed and that was great, still acquired places to pay for themselves and took the appreciation.

Other RE activities, L/O and sub letting was about cash flow.

Being active is making a living and wealth, income has to come first, disposable income becomes the investment driver, still more really to appreciation, anything that pays for itself is free money.

Lots of advantages with that approach , won't go into them, but consider, those that seek cash flow pass by tight deals, I can pick up the left overs not taken, rent them cheaper, have less vacancy, less headaches, let others pay for it and cash in later. Never was in a hurry. :)  

First appreciation!!  It's tax FREE and cashflow ALWAYS follows appreciation.  Cashflow first almost always kills appreciation.  

My main goal is to pay down the mortgage.  So my primary analysis is cash flow.  In my area you rarely have money left over to put in your pocket.  I do a 15 year mortgage, not a 30.  If it will break even after mortgages payment, insurance, taxes, vacancy, and repairs, if I can buy it I will.  In 15 years it will be paid off and cash flowing like mad.  If it goes up in value so much the better.  Appreciation is a gamble in my state due to boom bust cycles.

I'm particularly in it for the cash flow and principal pay down; however, if the city I both live and invest in maintains a path of growth after what has been a rough past few years of recovery, I hope to see some appreciation.  I got an absolutely stellar purchase price, so I'm already ahead in that sense.

Both! That is the best answer I can give. Because I want both I use little leverage. I prefer to invest in SW Florida because of our demographics. The baby boomers keep coming. The snowbirds keep coming. We have mild winters, a great quality of life, no state income tax, and a business friendly climate. All the predictions and graphs of the market the last few years show a steady uptrend. Almost 68% of buyers pay cash in this market. As the market values rise, this improves my ability to borrow against them in the future and have a very low LTV. That appreciation, along with a six figures per year cash flow makes RE the perfect investment vehicle for me.

John Thedford, Real Estate Agent in FL (#BK3098153)

As always  @Bill G. has some excellent points.

My philosophy is very much like @John Thedford. Florida doesn't have the job growth that places like Texas are seeing, but people are likely to continue moving to Florida as a retirement destination forever. That will keep appreciation going. Though it is not a steady curve, the climb is likely to continue indefinitely due to the steady influx of population. 

I look for solid cash flow for today, with a good location and desirability for appreciation. I don't count on profit from it when I buy, but I consider the likelihood of it happening. And when investing long term where appreciation is going to happen one just needs to be patient and sell at a good time.

Long Term Cashflow!

This means I buy in appreciating areas who's appreciations keep up/exceeds with inflation to preserve or increase cash flow. I leverage all my houses so that the tenants not my downpayment are paying for the house. I buy houses that eventually I can sell for a profit, so I can flip it into a better invest. I am here to grow my cash flow but have a 25k houses with $500 a month rent won't do that. I will spend more on water heaters, roofs, etc. So I look at cash flow but I also look at expenses so my NET cash flow keeps growing!

@Brian Beadle  

  its a fine line.. and really depends on asset class and tenant make up.

those that buy in low end areas with tough tenants even though they say they are long term buy and hold rarely make it 5 years if they are investing out of state.. those in state that do it for a living can and do well. The reality is low end rentals will just eat out of state investors lunch.

There was a thread a while back on BP that asked for anyone who had lived in CA or other areas and invested out of state that has been owned for more than 10 years.. the responses were crickets on BP...

Cash-flow helps people get off the rat race.  Appreciation helps people build wealth.  If they can achieve both, more power to them.

As Bob alluded above, history has indicated that cash-flow tends to follow appreciation. I'm fortunate enough to witness it first hand. A 1-bedroom in our area was renting for $1k/month in 2011 is now renting for $1,500-$1,600. A 2-bedroom was renting for $1,300 is now renting for $1,900-$2,000. 

The cash-flow can be abysmal at first in appreciation markets, but can be quite juicy in the not too far distant future so is the equity from appreciation, which can be tapped tax-free. There is no right or wrong answer. It depends on one's goal. Build wealth first, or get off the rat race first. Which path would get people to their goal faster? To shorten the learning curve, consider listening to other successful investors who have gotten there and see which path suits your goal.  Yes, they lied. One size doesn't fit all.

Every property I buy has to cash flow first so I can weather the storm. Then comes the appreciation. If I can't buy cash then I'd prefer 30-year fixed than 15-year mortgage.

Cash flow because I am in Oklahoma. My last house was $8000 all in and rents for $400 per month. If the rent can't buy the house in 3-5 years, I am not interested! My situation allows me to deal with the management/maintenance this class of property requires. The goal is always going to be cash flow for me. I intend to trade up once I have a solid cash flowing base. I will just move to higher quality properties with less headaches.

Cash flow.  If the property doesn't cash flow, then I couldn't hold it for very long.  Cash flow & mortgage pay off are my ultimate plan, appreciation is good, but you can only really benefit from it when a property is sold or refinanced.

Cash flow.  If your business isn't making money every month how long can you make it?

Originally posted by @Bob Bowling:

First appreciation!!  It's tax FREE and cashflow ALWAYS follows appreciation.  Cashflow first almost always kills appreciation.  

 But appreciation does not always precede cash-flow.

We look primarily for solid cash-flow when analysing a property - the kind that will allow the property to hold its own with a 15-20% vacancy (about 3-4 times the area average).

The only appreciation we seek is that we can make - we like to target tired or ready to retire landlords who have MFHs in prime locations, but have let things fall a bit behind on the maintenance and modernization fronts.   This kind of appreciation allows us more certainty that our properties will retain low vacancy and sustain rents in the 50-75 percentile of the local market.

We generally purchase with leverage, or buy cash and refinance after forced appreciation, so it goes with out saying that mortgage pay down is a wealth builder over time - which is part of the rinse & repeat cycle of growing our portfolio.

Here is my order:

1 - Cash Flow

2 - Cash Flow

3 - Cash Flow

...appreciation is just a bonus.  It's a trophy that can only be accessed by either selling the property (profit), or refinancing.  I choose to access it by refinancing, so I can keep the property and the...what's the word I'm looking for?...oh right,...CASH FLOW.

Joe Villeneuve
REcapSystem
A2REIC

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