Appreciation or Cash Flow???

Question

Hey everyone,

I live in Phoenix, AZ and have 2 properties there that are appreciating like crazy!! I want to get into multi family but that is difficult in the Phoenix Metro area due to the ballooning prices. My question is this:

Should I invest out of state in multi family to gain cash flow, or should I invest in SFR in Phoenix "knowing" that it will appreciate??

I want the cash flow because I want to be FI, but I also feel that in 5-10 years it will be even more difficult to get into any type of property in the Phoenix area.

Any advice is appreciated.

Bruce Woodruff · Answer

You ask 100 different people this question and I'd bet you get 100 different answers.... :-)

You might be in one of those situations where you can do no wrong.....but the market can change literally overnight. I remember this one week in 2008.....

Josh Caldwell · Answer

Cash flow by FAR. Cash flow will allow you to keep your property and profit in any market.  Appreciation is speculative, much like gambling. Don't believe me, talk to anyone who lost their back side during the 2008 crash. Everything was appreciating like crazy in PHX back then also, and they didnt see the crash coming.

Dallon Schultz · Answer

@Caleb Rowe as you've experienced, you're going to hear every opinion under the sun. Ultimately do what makes the most financial sense to you. Personally I look acquire properties that will conservatively cover operating costs, even if there is a dip in the market but ultimately going for the appreciation. $500k today is worth a lot more than $500k 5-10 years from now. I'd rather cash out and keep scaling up while hedging inflation and mitigating risk by ensuring the property will at least pay for itself. If I lose the equity at least I can ride it out until it comes back and then I go right back to selling and getting the big pay day to then reinvest in larger more lucrative deals. But again, just another opinion. Do what makes the most sense for you in your current situation.

Bruce Woodruff · Answer

I like that. Keep your current holdings and refi to buy a couple of STRs in a hip area. Best of both worlds!

Jana Crum · Answer

@Caleb Rowe I would definitely agree that going for cash flow is the way to go! Right now we are seeing crazy amounts of appreciation (30.5% in July MoM, 24.3% 12months). The market cannot sustain this for the long term. With the end goal of attaining FI, cash flow is a much more reliable way to get there. Plus cash flow will enable you to stay FI and have income every month. You can also still find deals in Phoenix that cash flow, right now we are seeing rents steadily increasing and the demand for rentals here is just as high as those purchasing a home.

Chance Love · Answer

@Caleb Rowe A family friend who's a realtor/ investor owned an Air Bnb less than 5 minutes away from the Cardinals stadium / Westgate entertainment district that did really well on a monthly basis. She decided to sell it last year due to Covid and cash out.

Matt R. · Answer

Perhaps you can get an AZ house and rent out rooms for cash flow. Hybrid multi. Run a test ad even, see what kind of response. My guess is you will get a crap ton even if high rent. Line it up for the day it closes.

Good luck!

Chance Love · Answer

"Go for cash flow and appreciation if you can but "cash flow is king." -Ken McElroy

Jason L Shinn · Answer

Hi Caleb, Multifamily seems to be the crazy, but as you said it's tough in the phoenix market due to the lack of smaller multifamily properties like Quads and 10 unit complexes for example. Have you considered other types of investments? Short term rentals are on the rise, and you can gain more cash flow than multifamily in the short term, and especially more than long term rentals, 3-5x the income per annum depending on the area, and number of bedrooms. What part of phoenix are your properties? I would hold onto any piece of real estate you can get your hands on in the Phoenix Market. Imagine buying a home in Huntington beach 20 years ago. The demand isn't going anywhere, and there is no evidence to support that the inventory will be increasing in any meaningful way over the next 2 years at least. Hold onto you properties, use the cashflow to finance other investment opportunities. There are also options to refinance your 2 homes and use that cash to finance other investments. Let me know if you want to jump on a call to discuss further.

Caleb Brown · Answer

Both have a place. The beauty of appreciation is you can use the equity as HELOCs or to 1031 into something else. As others said it's more of gambling because no one knows what lies ahead. Cash flow you can have more of a control, doesn't change as much as values does. Having a mix of both is good. OOS you can find more cash flowing homes but you'll need to establish a team. Either way keep holding the properties there or the long term.

Appreciation or Cash Flow???

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