I and my wife have good full-time jobs and have some cash on hand. I figured that REI is the best place to grow the money with tax benefits (mortgage interest, property taxes, depreciation). I have heard about cash flow vs appreciation and understand the logic of having some cash flow. But I am leaning towards properties that break even and have high appreciation so that i don't have extra income when I am in a high tax bracket here in California.
I am looking for suggestions on what is the best strategy.
1. get a property locally in A class neighborhood costing around $600,000 to 800,000 and hold long term for appreciation (no cashflow)
2. work with a turnkey provider and let them handle the portfolio
3. work with a real estate agent, property manager and invest out of state and look for cash-flow and appreciation (more work)
@Patrick Bavaro I’d like to learn more about your Build in Cape Coral. I’ve been researching the area and would like to know more about your experience.
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Mandar Kunte great to see your interest in real estate investing. While most investors would advocate that the foundation of real estate investing is built upon cash flow, I can see and relate to your perspective on appreciation. If you are more focused on appreciation, then your asset should be geared towards A/B class neighborhoods in my opinion. With that being said, I also advise that your propety still cash flows (~$150) and never hits negative numbers. I assume the 600-800k price point is in relation to your specific market? The benefit of pursuing out of state investments obviously is for cheaper housing. For instance, many markets have A/B class neighboorhoods in the price range of 300-400k, therefore, allowing you to utilize more leverage of OPM. The caveat of investing out of state, as you pointed out, is the time consumption/prepration of developing your core four (RE agent, lender, contractor, pm, etc.) The national average of annual apprection of a property is 3.5% to 3.8%. With this is mind, I would research multiple markets and narrow down on one to two, or make the decision to invest in your market. The reason appreciation is not discussed as much as cash flow is becuase there is no set method/formula for calculating the value of your invesment five, ten, or twenty plus years down the road, this is due to the fact that the property is dependent on market conditions. However, given the general rule, the reality is it's time in the market that will grow your wealth, not timing the market. Hope this makes sense and helps!
Real Estate Agent · West Palm Beach · Member since 2020 · 41 posts · 38 votes
4y
Hi Mandar I am an investor friendly agent in South Florida(I cover Martin County and Palm Beach County). Would be happy to hop on a call and talk you through whether Florida would be a good market for you and answer any questions you might have. In South Florida we tend to have higher appreciation than the national average and have had a high influx of out of state business coming to Miami, Fort Lauderdale, West Palm and Palm Beach Gardens. As I don't cover the Miami and Fort Lauderdale markets I have agents I work with down there. I also think the Vero and Tampa markets are good up and coming markets as well and have agents I work with there as well based on what you are looking for.
Specialist · Southlake, TX · Member since 2021 · 213 posts · 157 votes
4y
If you are looking for appreciation outside of the California market, I would point you to TX. Since there are no state income taxes in TX, property taxes do eat at the cashflow in the Texas SFH market. Nevertheless, we saw close to 25% appreciation in the DFW market in Texas last year for SFH. Major companies like Goldman Sachs are predicting similar appreciation for 2022. For A-B area in TX, the home price would be around 250k-300k. I would just make sure you have the right team in place if you want to invest passively out of state. Best of luck!
Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
4y
@Mandar Kunte I tend to lean your way as well! It depends on a few factors IMO in which route you take. Do you have flexibility with time from your W2? Are you experienced? Looking for just a turnkey property? Rehab? Etc.. once you think about those factors I think It will help narrow down your search.
I myself am in a higher tax bracket here in SoFlo, and have begun investing in high appreciating markets through a turnkey provider in Cape Coral and Ocala FL. Cape Coral has an average 7% yearly population growth and property values are still low (but sky rocketing) and projected estimates from Zillow see appreciation at 27% this time next year.
Currently I’m building a new build in Cape Coral through a turnkey provider that only required 10% down with a total build cost (land and construction) of $265k. Rents are $2300/mo right now and I am seeing post construction appraisals between $340k-$410k depending on location. Crazy numbers! I’d be happy to share my experience or offer an intro. Good luck!
@Patrick Bavaro I’d like to learn more about your Build in Cape Coral. I’ve been researching the area and would like to know more about your experience.
Realtor · Atlanta, GA · Member since 2021 · 98 posts · 54 votes
4y
Appreciation is great, but never guaranteed. Cashflow today is what you can literally take to the bank. So we always lean towards cash flow for our clients even if it's a small amount. Besides, with a good CPA, you will see tax benefits sooner rather than later.
If this is your first rental, I'd recommend you stay close to home or within a 2-hour drive/flight. That way, you build genuine relationships with your prospective Core4 and you can get there quick if anything goes awry. Call a local bank and get prequalified to see what your true budget will be, then walk INSIDE of a few homes to do your deal analysis. It makes it a real experience for you and your wife. From there, decide if you want to go out of state. Best of luck house hunting!
While cash flow isn't a lot, you want to make sure you aren't losing money. You can't count on places appreciating. You can count on the tenant paying down your mortgage. Good luck. It sounds like you've got a few good leads.
Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
4y
@Mandar Kunte highly recommend staying away from CA. Sooner or later you're going to get burned by tenants who absolutely take advantage of the pro-tenant landlord laws in the State. Seen way too many BP posts about it, and there are just as good of markets in other states that are more landlord friendly. STR in Cali is a safer play if it's allowed in those areas. Just my opinion.
Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes
4y
@Mandar Kunte great place to reach out! Glad that you are thinking about investing!
As far as suggestions, I would have to say that it really is going to depend on your investment criteria and purchase objectives. For example, if you are not needing to get to the cash flow of the property, then it may behoove you to purchase a property in a high appreciation area. Especially if you believe that prices will continue to increase in the coming years. The problem then becomes that if the market flips, you will be holding a zero cash flow property with negative appreciation for some time. Again, not a problem as long as a longer term hold is part of your investment objective.
With a turn key provider, I would say that you can get some good property and that is definitely an option, but it can be difficult to decide who to use and who is reputable and then to actually look after your portfolio once it is purchased, may be a different story especially if this is a long way away from your home base.
Working with an "investment team" I would say that maybe you should not contain yourself to just out of state property because there may be opportunities just near you as well. This will be more work than a turn key provider in theory, but potentially could be less work if you do have the right team in place. For example with an investment based Realtor, property manager, and contractor you should be able to seamlessly invest in property, and you get the added value of making sure that your product is still holding to a quality standard along with being able to see your property and replace team members more easily as well if need be.
Really it seems the biggest question should be, what do you want from your investment portfolio, and then from there you can implement the best strategy.
Regarding markets in CA, I would check out Bakersfield. With all of the growth that we have had recently, along with rent increases and price increases across the State, Bakersfield is quickly becoming the last place for cash flow in our beautiful State.
Best of luck to you in your endeavors! Please feel free to PM me to chat further as well!
Actually Riverside and San bernadino counties cash flow as well and better rental yields. Unfortunately Ca investors first inkling is to check OOS markets which have appreciated double to triple over the last 4 years.
The horror stories are in every market and not constrained to CA only.
@Mandar Kunte check out Dublin and multi family in Oakland. They may make sense . Remember multi family is all about increasing rents in your asset while SFR value is primarily driven by neighborhood prices