You would have to be nuts to invest for appreciation.

General Real Estate Investing
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You would have to be nuts to invest for appreciation.

Engelo RumoraBusiness Member
Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes

We all saw in the big crash what can happen to the value of a property. I remember (like it was freaking yesterday) a property an investor purchased seven years ago for 93,000, and that was appraised 7 grand above my purchase price. Eighteen months later it was valued at 40k below my purchase price. Most people would shout a giant "F---" as the banged their head against the wall. Unless of course they knew that it was in $1000 a month rental market.  

Do the math:

$93,000 purchase

- $40k value loss

+ $96,000 in rental income...

(the hell with the fact that the property has regained 100% of its market value)

= Go for the cash M8s!

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Brant Jones
Investor · Redlands, CA · Member since 2015 · 82 posts · 48 votes
9y

With everything else in life, there is always a point of diminishing returns where it might make sense to sell or exchange what was once considered a good, stable cashflowing property into something else because it a) no longer fits into your personal investment philosophy, or b) no longer conforms to the 1-2% rule for cashflow. For example, if I purchase a property for $115k, that rents for $1,300 per month, I would consider this to be acceptable and within the 1-2% rule. However, fast forward a few years and the property now appraises for $230k, suddenly that monthly cashflow does not look quite as attractive as the appreciation I have now realized, and I may be able to more effectively use that equity to achieve even greater cashflow somewhere else.

Most real estate books I have read note that early on in investors' careers, cashflow is the primary focus, but as investors become more mature and sophisticated, they tend to shift toward accumulating wealth through appreciation.

In either case, there is no right or wrong answer, but the flexibility we have to influence our destiny through real estate is what makes this business so attractive compared to other investment opportunities.

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  • Brant Jones
    Investor · Redlands, CA · Member since 2015 · 82 posts · 48 votes
    9y

    With everything else in life, there is always a point of diminishing returns where it might make sense to sell or exchange what was once considered a good, stable cashflowing property into something else because it a) no longer fits into your personal investment philosophy, or b) no longer conforms to the 1-2% rule for cashflow. For example, if I purchase a property for $115k, that rents for $1,300 per month, I would consider this to be acceptable and within the 1-2% rule. However, fast forward a few years and the property now appraises for $230k, suddenly that monthly cashflow does not look quite as attractive as the appreciation I have now realized, and I may be able to more effectively use that equity to achieve even greater cashflow somewhere else.

    Most real estate books I have read note that early on in investors' careers, cashflow is the primary focus, but as investors become more mature and sophisticated, they tend to shift toward accumulating wealth through appreciation.

    In either case, there is no right or wrong answer, but the flexibility we have to influence our destiny through real estate is what makes this business so attractive compared to other investment opportunities.

    3Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    @Engelo Rumora I've always been in your camp as CASH IS KING. The NOI checks fatten my checkbook regardless of the market as long as I wish to continue holding.

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  • Engelo RumoraBusiness Member
    OP
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Brant Jones As with any investment, it's never black and white. Thanks for your input. The only thing black and white here is the text on the screen.

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  • Engelo RumoraBusiness Member
    OP
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Jeff B. Oh just wait, I'll be stirring the pot on buying and holding later on this week!

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  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    9y

    Some people have great success at this type of investing. Most of what's going on in California and Seattle is investing for appreciation. This type of investing has made millions of dollars for a lot of people. I'm sure it made some people broke too.

    It's not for me, but that's one of the best things about REI is there are so many ways to make money doing it.

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  • Engelo RumoraBusiness Member
    OP
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    9y
    Originally posted by @Mike Hanneman:

    Some people have great success at this type of investing. Most of what's going on in California and Seattle is investing for appreciation. This type of investing has made millions of dollars for a lot of people. I'm sure it made some people broke too.

    It's not for me, but that's one of the best things about REI is there are so many ways to make money doing it.

    Thanks Mike,

    IMO investing for appreciation is speculating and much higher risk then investing for cashflow.

    There is much more certainty in basing decisions on the fundamentals of a deal as the numbers stand TODAY and not what they might look like tomorrow.

    Much success

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