Is Cashflow with no appreciation ok?

9 Replies

Hi guys, I would love to hear from experienced investors what they think of buying properties with great Cashflow but in a subprime area. The story is that I own a few units and the management company (which I'm satisfied with) knows of a 3 unit property. Recently renovated. Currently rented out and this management have been managing the property for a few years. So here is my question again, if I look at cap rate its around 20% which is amazing. But since it's in a c area I don't see there being much appreciation. (The issue of the bad area in general I'm not to concerned about because the management company whom I'm already doing business with is ok with it.) Please let me know your thoughts and advice and please tag me in your response so I'm notified. Thank you! Moshe

If your objective is cash flow and not appreciation, then you're doing okay.  You could then exit out of the property to another landlord who is looking for higher cash flow when you get tired of the property and want to move out/up.

Just make sure you are truly making money over time. Roofs and other large repairs can be costly so make sure you are budgeting for that in your analysis. Everyone has their own model. We personally like to buy in areas where appreciation is higher than inflation to preserve our cash flow. 

I'm always accepting excess shekels. Send any unwanted cash flow my way!

Edit: But seriously, there are plenty of investors that make money this way. The key is to have enough reserves to cover expenses.

Yes, I'm also accepting some cash. 

There are no cap rates for three unit buildings.

@Bob Bowling I'm guessing you mean to say that the value of a 4 unit or less property isn't based on the NOI, rather is values based on comps? That doesn't mean that the property doesn't have a cap rate. If the NOI is say 25k, and the purchase is 100k that makes this deal a 25% cap rate. No? Correct me if I'm wrong.

Originally posted by @Moshe Eisenberg :

@Bob Bowling I'm guessing you mean to say that the value of a 4 unit or less property isn't based on the NOI, rather is values based on comps? That doesn't mean that the property doesn't have a cap rate. If the NOI is say 25k, and the purchase is 100k that makes this deal a 25% cap rate. No? Correct me if I'm wrong.

 Exactly.  You have a number but without comps there is nothing you can do with the number.  

Yes it's fine , if that's your goal. 

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