Louisville, KY · Member since 2020 · 80 posts · 31 votes
I am a new investor and looking to get into my first rental property. I have a few different opportunities but my question is: for your first rental property, would you want something that cash flows good with bad appreciation, or one that cash flows okay but in a higher appreciation area?
My goal is long term buy and hold, but with little to no cash reserves, the idea of using the equity in my first rental property to use for another property is enticing. But don’t want to bank on appreciation if something is cash flowing very well.
Of course, in an ideal world you’ll want both cash flow and appreciation but which would be better for your first or first couple of rentals? Thank you very much!
Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
5y
@Brandon Fuhrman, Cash is King. Most people who go bankrupt do not do so because they owe more than they are worth. It is because they owe more than they can pay. They can't make their monthly nut. Unless you have a job that allows you to afford being cash flow negative, in the beginning I would focus on cash flow until you build up enough that you can make more speculative bets. Because appreciation plays are all speculative and should be left to experienced players who can afford to be wrong.
Yes, you will make way more money on appreciation in the long run, but it works both ways. It will wipe you out way faster and before you even get started if you bet wrong.
Louisville, KY · Member since 2020 · 80 posts · 31 votes
5y
@Allen Williams thanks for your thoughts, Allen. I had this in mind especially with the HELOC to take to different properties. I will definitely use this approach but perhaps later in my investing career.
Specialist · Huntsville, AL · Member since 2020 · 96 posts · 35 votes
5y
@Brandon Fuhrman
Advise people to go after both. If you’re looking for something that’s more of a retirement investment then I get to have any appreciation and then of course having someone else make your mortgage payment so it drives down what you have to pay. But even if your cash flow is low but your appreciation plus the amount of the properties worth later it makes it a win-win.
If you don’t have the ability to get both I personally classify that as a negative deal. And any lender that’s gonna put you in a situation to where you can’t get at least some cash flow off the property and at the same time have more money when you need cash 10 to 15 years down the road that’s predatory lending.. I personally will not allow this.
But at the end of the day you have to be comfortable with the investment. If an investment takes away from what you have presently and is not positive I would not recommend it.
Lakewood, NJ · Member since 2017 · 16 posts · 9 votes
5y
@Brandon Fuhrman
In the beginning I would suggest go for the cash flow, once you get used to investing and it becomes second nature to you then is when you look at appreciation.
I have done very well on appreciation but I won’t take a deal that does not cash flow. I will also not take a deal that only cash flows with no appreciation. So I don’t take sides on this one. It has to be both. If my money has to sit somewhere it better be in a great place.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
5y
Yes what happens is tenants dont pay and it takes time to evict while you carry mortgage and then they have done $10k in damages and you will never collect suing them lol its a story that has happened a million times. Even when they do pay lower income people tend to treat rentals poorly and you have higher turnover costs, re-painting, flooring, etc.
@Brandon Fuhrman more rentals, stock market is for suckers :p
Absolutely untrue and an incredibly ignorant statement. I've invested in both for many years and made close to 8 figures in total from both (about equally divided, but the edge goes to securities in my case).
So sorry you simply have not the first clue, if you were unsuccessful investing in securities the problem is not the securities or the markets they trade on, it's much much closer to home.
Investor · St Louis, MO · Member since 2017 · 250 posts · 181 votes
5y
Both are important, but I would choose an asset that cash flows over a property that I am betting on appreciation for. However, be careful to fall into the trap of investing in a high- crime area, just because the cash flow on paper looks good. You want a healthy balance of cash flow and appreciation. If you buy a property in a good area that cash flows, you will be able to compound that income over time to invest in more properties. Welcome to the REI world!
Welcome to the RE world! My goal is and always will be CASHFLOW. Appreciation is a bonus, given over time and because of patience. With that being said, I look in towns next to big cities, its the outward expansion! Don't buy dumps, thinking cashflow. Usually the headache won't be worth it. Good luck
Property Manager · Fresno, CA · Member since 2017 · 35 posts · 23 votes
5y
@Brandon Fuhrman
Getting started is the best! What I’ve found is equity is power! If you have equity in a property that’s leverage you can use to get more doors. It will help you scale quickly.
Property Manager · Fresno, CA · Member since 2017 · 35 posts · 23 votes
5y
@Brandon Fuhrman
Yep, I always look for equity and cash flow. I’ve only done a handful of deals but if you can get equity, the debt gets paid down by the tenant and you can go buy more without having to save cash for another purchase.
Accountant · Los Angeles · Member since 2019 · 58 posts · 25 votes
5y
Cashflow has better predictability and you have more control on the internal factors to limit the loss. A better cash flow definitely earns its appreciation, while the appreciation alone is highly unpredictable and volatile.
Cashflow is the cause and appreciation is its effect, in an Accountant's view.!
Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
5y
@Brandon Fuhrman
I look to add value and position myself in locations with appreciation potential. Often you can super charge rent with say college rentals or what I do STR. Note that STR is a business I requires skill and time if you are doing it yourself. I also look to creat forced appreciation with renovation and furnishings.
So the question should be how can I add value so I get forced appreciation high cash flow keep the property nice and a location that is desirable . Most of My properties (all in the market I’m expanding into more) have had double digit forced appreciation double digit market appreciation. And if you looked at it with cap rate double digit cap rates both for purchase but also current prices. Both is very possible.