Cash Flow vs Appreciation: Where did you succeed?

Question

I have been looking at places in Austin as I realize it could appreciate decently well there. But at the same time I see Vegas has so much better cash flow. I realize there are good points to both. So my question is...

Have you succeeded more on focusing on cash flow or more on focusing on appreciation?

Steve Babiak · Answer

Here's a really LONG oldie but goodie thread ...

http://www.biggerpockets.com/forums/48/topics/34916-appreciation-vs-cash-flow-the-clash-of-the-titans-

Jeremiah B. · Answer

I'm a long term, small fish, part time, hands off investor.  And I value appreciation over cash flow but would never purchase a place that did not have a decent and reliable cash flow.

Rich Weese · Answer

You need to be able to pay your bills and buy groceries. This might mean that your adventure into the real estate arena requires you to find properties that will provide cash flow to do exactly that. Especially if you are starting at an early stage in your career.

There are obviously problems in buying cash flow properties since most of them are older, in less desirable areas and will have much more in turnover and expenses in general, in my opinion.

If you get into real estate at a time when you have adequate funding then you have more options available to you. You may then choose to do either or and in some cases to do both. There are obvious benefits to both or everyone would be doing just one of them.

I think most investors would agree that when you get to a point where you are buying for the long term, the better the property condition the better deal you are acquiring.

You might also choose to diversify into different types of real estate. I like the self storage facility I own as a cash cow with very little ever in the way of maintenance or repairs. The turnover in tenants never requires paint or new carpeting and this seems to be a very good investment for cash flow.

A self storage facility however provides much less in the way of depreciation or write off. To help with this situation, I try to purchase as much "depreciation"as possible in the form of newer real estate properties, mostly single-family residences. I also feel these have the best opportunity to appreciate and even show a better potential retirement source of passive income. These provide very little cash flow.

Between these two methods would be where my multi family units would fall. They are going to provide cash flow somewhere between the other two and the upkeep, maintenance and expenses would also fall between the other two.

I understand this is not for everyone and I certainly didn't accomplish this overnight. I worked hard to obtain this position and can assure you that this triple headed monster works very well. Rich

Cody L. · Answer

My walking around money comes from cash flow.  It's like the "base salary" to a sales person.  The appreciation and profit taken from a sale is like the commission and where most of the money to buy new properties come from.

I look at cash flow as a way to keep my employees paid, take my little owner draw, and pay down debit services and expenses.  The equity taken out of a sale (due to appreciation) is what funds GROWTH and my ability to buy new and larger properties.

Robert Adams · Answer

The cap rates in Vegas have been decreasing as the prices have been increasing this past year. Thus effecting your cash flow. You can still find 8% rather easily still though. However, if you had bought here earlier in 2012 you could find 10% all day as well as gain appreciation. Neighborhoods appreciated between 15% and 25% in 2012 due to the shortage of inventory. It will be interesting to see what happens next month when the legislature meets again.

Cheryl C. · Answer

Thanks for the link Steve Babiak.  I read a couple of pages and skipped to the last post.  Good ole Brian was there to provide the "cliff notes" summary.

Xing Zhu · Answer

It might depend on the market condition. At least for the time being, appreciation is more important than cash flow. Last year,
my cash flow was only around 3%, but the appreciation ranges from 20% to over 40%. The low appreciation properties were purchased directly from the developers.

When the market stabilizes further down the road, the sport may change to cash flow.

Jason Kosowan · Answer

My first couple of purchases, I focused only on cashflow.  It was an ok first step, but as I went down the road, I found that I got more issues too.  Rent collection was sometimes hard, rehab between tenants was more expensive and time-consuming.  It's a little tiring to juggle that with working a full-time job.

Now, I try to look for a balance if I can.  My latest purchase was a smaller unit in a better area, which I think covers the middle ground.  I'm happy with it so far.

Ryan Moses · Answer

Cash flow in the short term and appreciation for the long term.

Timothy W. · Answer

They're being assessed a dollar figure by their valuation.  At the levels they're working at, valuation is most likely based on their cash flow.

Cash Flow vs Appreciation: Where did you succeed?

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