I'm new to the Real Estate Investing world. I haven't made the transition to stepping out and shopping for rentals yet. I'm still reading and educating myself. But I am curious. Do you guys invest for cash flow or appreciation or maybe even a mixture of both?
@Victoria Stokes In buy and hold, cash flow is key. In fix and flips, you are looking for forced appreciation.
When I look at buy and holds, I want both cash flow and appreciation. Meaning, I am looking for properties need renovation (although typically not as much as a fix and flip) and I can get more rent when renovations are completed. This method takes more work, but creates larger returns, and creates more options upon exit.
@Victoria Stokes I think most will agree that investing for cashflow is the smartest thing in this market right now and in general.
When you can get appreciation, it’s icing on the cake, but it’s not guaranteed. If you cashflow from day 1, it will always cashflow unless there’s some catastrophic increase in expenses, but it won’t always necessarily appreciate. This will vary largely depending on the market you are in.
>I think most will agree that investing for cashflow is the smartest thing in this market right now and in general.
I think that you are correct most on this site would agree that investing for cashflow is the smartest thing. However, I highly suspect that most of the more successful (lets say RE assets over $5M) would not agree. They would choose a good appreciating asset over a good initial cash flow asset for a buy n hold. In addition, if the appreciating buy n hold is of significantly long duration, the appreciating RE will have the better cash flow.
Who do you think is more likely to have the more successful approach?
I evaluate all sources of return when I purchase. I typically acquire a bit under market value, perform a value add with refinance for instantaneous return, then hold it and let leverage and appreciation do their magic. Leverage combined with appreciation provides incredible returns.
Cash flow should be your number 1 goal. The only time you should depend on appreciation is when it's forced via BRRRR, distressed sales at a discounted price etc.
Well........ cash flow is nice (it pays the bills) but appreciation is a wealth generator.
I know folks who started with 1 million and now have 7 million in less than a decade. Cash flow can not match that, altho cash flow is what provides that (commercial bldgs are valued based on cash flow)
so if i were to give advice i would say - screw SFHs, buy the biggest asset you can (3 or 4 family) hold that for a few years save all the income then trade up to a real commercial asset - hold that for 5 ish years, then trade that up to a bigger asset etc etc. this is how wealth is created!
Adding: cash flow is a function of how much cash you put in the deal. 100% cash buy will cash flow well. 90% leveraged will cash flow badly.
One of my cardinal rules is to never invest in any property that doesn't cash flow. Sure, some investors make sizable returns on land and other non-cash flowing real estate, but they also bear much higher risk in doing so.
That said, for investments in my Solo 401K, appreciation (i.e. risk-adjusted IRR) is my primary investment objective, while I prioritize cash-on-cash returns in my non-retirement investments.
Ahh...! Been away for a minute. But I'm back and after reading through all of the responses, the general consensus is that Cash Flow is King with still other ways to utilize appreciation in a bigger way. This is all exciting information because it shows just how creative you can get with real estate, of course depending on your level of risk-tolerance Hmmm....
@Victoria Stokes This should all depend on where you are at in your career and life and where you're headed. I began investing out of state for strictly cashflow, and recently realized that it makes more sense for me to be investing locally where I believe in the market and am able to add more value. Some folks want to be semi-retired in 5 years, that's not me. Depends what you're after!