++Cashflow /w No Appreciation VS Appreciation Markets

7 Replies

I am analyzing new markets in my surrounding area. I am happy /w Barrie, but the massive appreciation is starting to kill the cashflow potential. My current properties are doing good. But future ones...

My question is:
Which market type is better?

1. A market that has excellent population growth, with a mid-high affordability index. Appreciation is high and fast. Demand is high, so winning offers arent frequent. Cashflow is low and in many cases not possible.

VS

2. A market that has a stagnant population /w little growth, low affordability index. No/low appreciation market. SFHs are cheap, and rents are good. Cashflow is high. 

Don't buy in hopes of appreciation. That's why 2008 was so bad.

Make sure you have cash flow, even if only just a small amount. A little cash flow and principal purism every year is much better than risking if the market tanks and you're upside on multiple homes.

I think of it like baseball.

High appreciation is like a home run. it's sexy, you move the bottom line a lot all at once, and you can make a case for getting your money out. The downside is that you can struggle when the market is on the wrong side of buying or selling.

High cashflow is like a base hit. It's not going to impress you friends, much easier to find in any market, it's dependable long term wealth building.

The truth is neither is better. And perhaps a mix will yield the best results. High cashflow for the base of your portfolio that lets you leave your job and opportunistic appreciation plays that jump up your net worth in a few years.

Both types of properties carry different pluses and minuses. I always like to say...

Cash flow is how I pay my bills, appreciation is how I build wealth.

So what is your goal? If it is income replacement, then cash flow is the way to go. If you have a good income, and like you job, then maybe appreciation is the way to go.

@Darren Horrocks I don't understand why people focus on the either or of cash flow vs appreciation.  As investors we should be running to door #3: BOTH cash flow and appreciation.  This type of market does exist all over the US, look for both pieces of the puzzle, don't settle for one or the other.  Just my 2 cents.

Take it easy,

Arlen

@Darren Horrocks I agree with @Arlen Chou : I think it shouldn't be an either or but a both. I think it's definitely possible to buy good properties that cash flow AND appreciate. I used to think about it in this way too as far as trying to decide which was more important. But then it dawned on me that to have good cash flowing properties there has to be demand. To have demand there has to be population growth. When there's population growth there's appreciation. So they really do and probably should go together.