New to Real Estate · Boston · Member since 2020 · 27 posts · 12 votes
Hey BP Community - I am really torn on this dilemma between accepting lower CF in Boston but experiencing more appreciation over time, or just move my money to the burbs or lesser appreciation areas for more cashflow. Now I know a lot of comments will say it depends on your goals, but at the point in the market, I do feel as though prices are inflated so maybe purchasing a property in the city isn't the best idea because we will likely experience a market downturn soon, and then it'll take that much longer for appreciation to do its work.
Thoughts? Love to get a conversation going on where the market is, especially with residential rates going up over 3% for the first time since July.
Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes
5y
This tradeoff is something that I wrestle with constantly, and to me it comes down to this: On a $1mm (or less) property or less cash flow is not going to make me rich or materially alter my life in a meaningful way. I still will go to work every day and unless I stack up 10+ properties I am not going to generate six figures in passive income.
However, appreciation can *absolutely* alter my life in a meaningful way. A $1mm property appreciating at 4% per year is worth $1,480,000 in 10 years, so including debt paydown you will have $600,000+ in equity. Change the 4% to 6% and it gets even crazier --> the same property would be worth $1,790,000 in 10 years, giving you $900,000+ in equity.
Cash flow from 2-3 properties doesn't have the potential to change your financial life substantially, appreciation does. Give me the property in the city all day.
Realtor · Raleigh-Durham, NC · Member since 2018 · 324 posts · 218 votes
5y
@Brendon Kerrigan lol yes it does depend on your goals. That being said I have two very health cash flowing properties 2-4 miles from Boston. So it depends on your goals and your ability to find/make deals. That being said some multi prices seem high right now. Higher rates should help steady the prices
Realtor · Boston, MA · Member since 2018 · 24 posts · 13 votes
5y
@Brendon Kerrigan You brought up a lot of very good points. I think a big factor in determining what to do depends on if you are you going the owner occupied route or purchasing a traditional multi family investment. Many people opt to use an FHA loan when they go the owner occupied route, which is a great decision due to the low down payment but your mortgage is going to be larger meaning a larger monthly payment as well. Making a larger down payment would make it easier to CF closer to Boston, but some people are still able to house hack and cash flow if you find the right deal. Another thing to consider is if you're going to hire a PM or manage the property yourself because this could affect the CF as well and where you are going to want to purchase location wise. If you are working remote this might not be such a big deal, but if not, how far are you willing to travel to work or to your property if you are not doing owner occupied and you are self managing. Hope this helps!
Realtor · Atlanta, GA · Member since 2015 · 266 posts · 182 votes
5y
Hey @Brendon Kerrigan, I'll take the cashflow all day over the appreciation because me personally I want to have the money coming in now vs in the future especially when you are dealing with commercial property that is valued on the income approach. If you can buy the property with a good amount of equity already built in and it already cashflows that's the sweet spot deal. The main factor to be mindful of is that the project isn't to distressed and needs an excessive amount of renovation/capex needed that could kill your deal. That's why I stress underwriting the financials conservatively and doing a full inspection while obtaining quotes of costs especially since we have seen a spike in material/labor costs year over year. Best of Luck and I hope this helps!
Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes
5y
This tradeoff is something that I wrestle with constantly, and to me it comes down to this: On a $1mm (or less) property or less cash flow is not going to make me rich or materially alter my life in a meaningful way. I still will go to work every day and unless I stack up 10+ properties I am not going to generate six figures in passive income.
However, appreciation can *absolutely* alter my life in a meaningful way. A $1mm property appreciating at 4% per year is worth $1,480,000 in 10 years, so including debt paydown you will have $600,000+ in equity. Change the 4% to 6% and it gets even crazier --> the same property would be worth $1,790,000 in 10 years, giving you $900,000+ in equity.
Cash flow from 2-3 properties doesn't have the potential to change your financial life substantially, appreciation does. Give me the property in the city all day.
New to Real Estate · Boston · Member since 2020 · 27 posts · 12 votes
5y
@Tom Wagner That is an interesting thought and I do agree appreciation can be life changing, but a lot of what Brandon and David talk about is not betting on appreciation but rather have it be icing on the cake. I know there are different views and its interesting for sure, but sometimes I wonder in these markets are you going to really get the cash flow that some of the investors talk about on the podcast. The answer is yes but I am still new to investing and building my network and team.
@Curtis Rouse Jr I do like cashflow for sure, and I try to analyze my deals conservatively, but sometimes I do let emotions get involved but I think that is because I don't have the deal flow that I should.
@Patrick Flynn I don't plan on putting down a large down payment, 1 because I don't have a large one, and 2, I like trying to get creative and trying not to put down big money, but rather force the appreciation. The downside to it is that it makes it much more difficult to cashflow if you don't force enough equity into the property.
@Avery Heilbron Yes I have been trying to look around some of the towns that are right around Boston. I see you post quite a bit in the Boston area forums and I appreciate all of your insight!!
@Tom Wagner That is an interesting thought and I do agree appreciation can be life changing, but a lot of what Brandon and David talk about is not betting on appreciation but rather have it be icing on the cake. I know there are different views and its interesting for sure, but sometimes I wonder in these markets are you going to really get the cash flow that some of the investors talk about on the podcast. The answer is yes but I am still new to investing and building my network and team.
@Curtis Rouse Jr I do like cashflow for sure, and I try to analyze my deals conservatively, but sometimes I do let emotions get involved but I think that is because I don't have the deal flow that I should.
@Patrick Flynn I don't plan on putting down a large down payment, 1 because I don't have a large one, and 2, I like trying to get creative and trying not to put down big money, but rather force the appreciation. The downside to it is that it makes it much more difficult to cashflow if you don't force enough equity into the property.
@Avery Heilbron Yes I have been trying to look around some of the towns that are right around Boston. I see you post quite a bit in the Boston area forums and I appreciate all of your insight!!
Definitely hear the cash flow argument as well. Regarding BP content, Brandon also focusses largely on the Midwest where properties trade at 8-cap's and cost $250,000 or less. The reality is that unless you push far outside Boston you just aren't going to find those type of numbers in Massachusetts. Also, there's big institutional money and deep-pocketed investors swooping into cities and buying breakeven deals in major metros all across the country at sub-4.5-cap's. And as an individual investor you can generally get better loan terms than them! So if they can justify a 4.5 cap, I think we as individual investors should take a look, too.
Developer · Boston, MA · Member since 2016 · 175 posts · 155 votes
4y
@Brendon Kerrigan, I was in the same boat 11 years ago and I picked option C. My first purchase was in Somerville for 450k. Today the value is 1.1M. I purchased using a FHA loan because of the lower down payment. After that purchase I focused on Springfield MA. Springfield MA provided higher cash flow. This is why I say option C. Option C being both option A and B. I ended up growing the Springfield portfolio to 30 unites after I sold everything there and only focus on buying in The Boston area.
Developer · Atlanta GA · Member since 2020 · 30 posts · 15 votes
4y
@Brendon Kerrigan This is something I continue to grapple with myself as a new investor. I currently own one property that I am House hacking in West Atlanta. This has been something of rapidly gentrifying area which has allowed me to capture 100k in equity in less than a year (likely aided by the fact that I bought below market) That being said what started as property that did a little better than break even is now Cash flowing $500 a month after all expenses.
To answer your question, I feel that Urban properties have a more consistent rental demand due to the higher cost to purchase and the desirability of being close to the city. However, I would not recommend buying something that didn't at least have some cashflow on the table. I think a good strategy is to diversify with a combination of Suburban Cashflow properties with a few city properties that have high potential for appreciation, equity and rent increase.
New to Real Estate · Boston · Member since 2020 · 27 posts · 12 votes
4y
@Tony Montano Right now I ended up buying a 3 family in Manchester NH with 2 partners, under value and going to refi out in March, that's the plan anyway. I like what @Conner Olsen and @Josue Velney said with investing in appreciation early on and exchange it for cash flow later.
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
4y
@Brendon Kerrigan I am investing in a high appreciating area and getting good cash flow putting my properties on Airbnb. I'm able to get a 5% cash-on-cash return through Airbnb when I was going to get a -8% return doing year-long leases.
Rental Property Investor · Manchester, NH · Member since 2019 · 186 posts · 156 votes
4y
It's interesting but @Brendon Kerrigan I think Manchester is at a very unique cross roads. The numbers still don't look great to build new but it would appear that this administration is hell bent to expand passenger rail to NH. They only need to complete something like 12 miles to make it happen and with all the money coming out of Washington it seems like a no brainer to toss that one over to a swing state. If that happens it's my opinion Manchester will continue to see big growth in coming years.
Real Estate Agent · Manchester, NH · Member since 2015 · 160 posts · 148 votes
4y
@Brendon Kerrigan I love the Manchester market long term, Good Luck with the Triplex!
@Joshua Tessier I have to agree with you, Manchester is in an interesting position right now. I am very hopeful we can get rail to the city soon, but confident in its growth regardless.
New to Real Estate · Boston · Member since 2020 · 27 posts · 12 votes
4y
@Joshua Tessier@Jeremy Nault Manchester is very interesting. I didn't know much about it, but one of the partners I am in with on the deal knows the market pretty well, already had another triplex, and honestly the only I did it with him is because it was off market and got it well below market value. I don't know how long I want to be in that area.