Why More Investors Are Prioritizing Cash Flow

Question

Over the last few years, appreciation covered a lot of mistakes.

Now I’m seeing more investors shift back toward:

• Strong monthly cash flow
• Conservative underwriting
• Lower-risk rentals

Especially with rates still elevated, deals need to make sense on day one not just eventually, The investors still buying consistently seem to focus on:

• Rent-to-price ratio
• Liquidity after closing
• Flexible exit strategies

Are you buying more for appreciation or cash flow right now?

James Wise · Answer

Cash Flow is Dope Yo

Jim Johnson · Answer

Appreciation is always nice, but relying on future market growth to make a deal work feels a lot riskier than it did a few years ago. In the current environment, cash flow and solid fundamentals seem to provide a much stronger margin of safety.

Deals that make sense from day one—with conservative underwriting, healthy reserves, and multiple exit strategies—are a lot easier to hold through changing market conditions. If appreciation comes, that's a bonus.

The investors who seem to be staying active right now are the ones buying for durability, not just upside.

Hasan Gabareen · Answer

You aren't wrong for bringing this up and honestly its a big question that many LTR investors do not truly ask themselves before evaluating a property. I try to have a balance on the deals that I prospect and underwrite when it comes down to cash flow and appreciation. The general problem is that in many markets, they either lean more heavy to one and other. For example, Cleveland typically has an excellent Rental Yield but it's appreciation tends to be fairly slow yet stable. If you are expecting in the next 5 years for a property worth 210K to skyrocket to 300k+, Cleveland may not be the best market for that. In contrast, the Bay Area in California has seen incredible appreciation over the past 20 years but their rental performance isn't too incredible as most properties I have seen and analyzed have sat at losses. My ideal strategy is to find a decently cash flow positive but strong on appreciation. Essentially my goal is to cash flow enough to cover the costs of the property but simultaneously have enough for micro repair or vacancy reserves while I see the appreciation do it's job. That's my strategy but some people might care about just making enough monthly.

Ryan Thomson · Answer

Cash flow becoming the priority makes total sense when financing costs doubled in 18 months. Back in 2021 people were buying negative cash flow deals banking on appreciation. That worked until rates hit 7% and appreciation stalled out.

At 7% on a $400K loan you're paying about $2,660/month just in P&I. That same loan at 3.5% is $1,796. That $864/month difference is the gap between a deal that cash flows and one that doesn't.

One angle I've been using in Colorado: assumable mortgages. Every FHA and VA loan is assumable by law, so there's real inventory of sub-4% debt still out there. Picked up a property last year by assuming a 3.1% loan on a $340K balance. Cash flow was positive from day one. If I'd financed conventionally at current rates I'd have been negative $500+ per month on the same property.

That's not a financing trick. It's just buying a deal where the numbers actually work.

The investors I see winning right now are mostly people who found real discounts or found creative financing. Paying full retail with 7% debt and hoping for appreciation is how you lose money slowly.

Chris Seveney · Answer

I am buying on what I believe is a good deal. some of them are great appreciation plays and some are great cashflow plays. I do not rely on one or the other but mix the portfolio up so I have both

Drew Sygit · Answer

We look for:

CashflowForced Equity

Long term appreciation is rarely appealing enough to be the ONLY reason to buy.

Stephen Delahoussaye · Answer

Frankie this is spot on and something I have been seeing in Nashville for the last year or so.

The days of buying something that barely breaks even and hoping appreciation bails you out are over. At least for now. Rates are too high and the margin for error is too thin. If your deal does not cash flow from month one you are just hoping, and hope is not a strategy.

What I tell the owners I work with is that cash flow is not just about what rent you charge. It is about what you keep after expenses. And most self managing owners dramatically underestimate their real expenses because they do not track them properly. They forget vacancy loss, they forget turnover costs, they underbudget maintenance, and they never account for their own time.

That is actually what pushed me to start my property management company here in Nashville. I kept seeing owners who thought they were cash flowing but when you actually ran the numbers including their time they were working for free. Or worse.

The investors I see doing it right in this market are the ones who buy for cash flow, hire professional management from day one, and treat their rental portfolio like a real business instead of a side project. Those are the ones who actually scale.

Kenneth Garrett · Answer

@Ryan Thomson

Are you assuming the loan as owner occupied for a year and then use it as a rental property.  I thought the Va did not allow you to assume a mortgage unless it is owner occupied for at least 12 months.

Why More Investors Are Prioritizing Cash Flow

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