Cashflow markets vs. Appreciation markets

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5mo

>Appreciation is great, but you can't always count on it

Going back as far as property price records exist, the longest non appreciating time span in my San Diego market is 8 years at the GFC. The second longest is about half of that span in the early 1990s. I recognize it is a single market.

But what about cash flow? The GFC saw numerous markets that cash flow diclined so you cannot always count on it. Similarly there are many markets were the cash flow has been reduced over the last few years due to either rising costs (areas such as some spots in florida) or falling rents (Austin: rents down ~5.5% yoy depending on source and more than that over the last few years).

As every stock fund likes to say, past performance is not an indicator of future performance. This holds true for both appreciation and cash flow. That is why metrics other than past performance must be used. Diverse economy, ease of adding units, population growth, etc. somethings are hard to forecast. The inspections resulting from the seaside condo collapse and resulting HOA increases for example. Others are easier to foresee such as rising insurance costs in many markets (including CA) due to higher risks resulting from global warming. The increase in Austin development foretells possible price decline at least a few years prior to the impact.

I still go for total return with little concern about the source of the return but try to minimize the source being cash flow because it is taxed annually. If it was not for cash flow being taxed annually, I would not have any preference to the source of the return. If I can achieve >25%/year ROI, then RE is a good investment option.

My issue with the highest initial cash flow markets is that they often project poor rent growth and appreciation. The cash flow is unlikely to increase significantly. The markets that project better appreciation and rent growth are typically not only going to have better appreciation, but they will have better cash flow on a long hold.

Because past performance does not dictate future performance, not all historically poor appreciating markets will continue to have poor appreciation (as you mentioned Indianapolis) and vice versa (possibly Austin). Identifying markets that are currently “cheap” but will have good appreciation can be challenging and rewarding.

Good luck

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Arn CenedellaPro Member

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

5mo

@Greg Scott

The “debate” is nicely laid out in your post.

Like most things in life, the correct answer is generally BOTH AND and Not EITHER OR.

I strongly agree with your point about most wealth is created through appreciation. That’s why I invest in RE.

Many investors who make “cash flow” the be all end all miss the true way wealth is created. It takes a heck of a lot of equity to generate $150K to $250K annual income. I have also found once one reaches a certain net worth, cash flow takes care of itself. An investor can generate as much as little as they want with their allocation of capital decisions.

A property must cash flow for sure. I describe this as being “self-supporting”. The cash flow is NOT money I need to support my lifestyle or pay my bills, it is a protective buffer for when problems arise - rents drop, unexpected repairs etc.

in order to invest heavily in real estate one MUST have the capital to do so.

How does one generate this capital?

There is really only one truly successful manner to do so - spend less than you earn. That’s it.

If one spends less then they earn, they don’t need cash flow now to support their lifestyle. They are investing for future benefit - equity growth.

It’s both and.

But if I was a young person entering peak earning years, I’d invest with the finish line being 10 to 15 years out. The finish line isn’t how much I put in my pocket year one.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

5mo

as someone who has been doing fundings in the mid west since 2002 I find that if investors do as Greg indicates invest in the upper end of the market there will do just fine. The investors that get hurt are the ones chasing paper returns and has some illusion that rentals houses that have max debt are going to create enough cash flow to live on etc. It can happen but you need a lot of them and it becomes a business not a passive or semi passive investment.

Watching these markets I find that in the SFR space if investor would simply look at a market they want to jump into Most mid west are interchangeable, Look at median house prices. If its say 225k in Indy or Detroit metro or Cleveland or columbus or Jackson MS etc etc. You buy at that price point or higher. Cash flow generally will be break even to maybe a few bucks a month but nothing your going to retire on. Then the wealth is create with mortgage paydown rental rate increase some price appreciation the nicer properties will appreciate and some tax Bene's

Conversely if the 225k median has 100k homes thats the risk thats being discussed and its just common sense. Real Estate prices for risk in these markets and neighborhood elements IE schools Crime quality of the homes etc. The other common sense thing is were to the best renters want to live they live in the communities they know the better areas so those props are more stable demand a better tenant etc.

Growing up in Cupertino CA ( Bay Area ) houses did not start to rise strati spherically until the late 70s as high tech really started to take off. So in those days it was an appreciation play a rental was great if you could break even with max debt or maybe feed it 200 yo 500 a month.

So as investors back in the day you had to play the hand you were dealt no one really thought of living in the Bay Area and investing in Ohio. And people generally in Ohio were not thinking of buying investment props in CA. This out of state phenom came alive in about 2000 I entered the lending to out of state investors in 2002.. Detroit was our first out of state market.

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Alfath AhmedBusiness Member

Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes

5mo

Quote from @Greg Scott:

About 10 years ago BP started categorizing markets as cashflow markets and appreciation markets.

Criticism of cashflow markets - I remember a podcast with David Green where he was critical of Midwest markets that had cashflow. He went into details about how other BP members had focused in areas with high cashflow and they had extremely poor returns. I certainly can understand how he got that perspective. I live and invest in the Midwest and know these markets well. If you are an out-of-state investor and myopically looking for the highest cashflow, where does the data take you? On paper, the highest cashflow properties are in the terrible, awful, bring-a-gun-with-you submarkets. While some people make money in those areas, that is a very challenging business model.

Why appreciation markets? - The concepts BP was discussing at the time was more appreciation-focused. David said (and I believe he is correct in these statements) that the people that became wealthy in real estate got there primarily from appreciation. David Greene started shifting his focus to higher-priced cities, with the idea that appreciation would drive the profits.

Is that true? - Meanwhile, I was investing in Midwest markets in solid middle class neighborhoods. My cashflow was not amazing, but it was acceptable. Because I was investing in solid cities and submarkets, I also got appreciation. A few years back I did an analysis using Zillow data and found that over the past 10 years, Indianapolis had a greater appreciation than San Diego. Why did nobody know this? I suppose when a $100,000 house becomes a $200,000 house, it isn't as eye-catching as when you $1,000,000 house becomes a $1,500,000 house. As a side benefit, I enjoyed more favorable tenant / landlord laws.

The DANGER of appreciation markets - Austin, Texas was once labeled an appreciation market. Current oversupply has driven down rents. Imaging making an investment where you were counting on appreciation for your returns, and instead your property LOST value! This week the US Census announced that immigration policy has caused dramatic population reductions in several other "appreciation markets". Miami, which was one, has already been seeing dramatic reductions in property values. How do appreciation markets perform when there is no appreciation and it may be a decade before prices recover?

Both is better - I must say I am much more comfortable with Dave Meyer and Henry Washington's approach. Cashflow may not make you rich, but it gives you holding power. Appreciation is great, but you can't always count on it. If you can hold a property long enough in the right cities and submarkets, then you usually also get appreciation.

Go get both!

This is a great explanation @Greg Scott. I also invest in the midwest and own 28 rental units here. I have found that I like to slow down and buy in B class areas or better now. Before when i first started out of college, I was buying anything that I could get my hands on which made sense for cashflow and appreciation.

Now i focus more on equity plays, position on purchase, capEX understanding, rental demand, and re-salability of the home. 2-4 units tend to perform very well and sell fast if you upkeep and buy in the right areas.

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Todd AndersonPro Member

Real Estate Agent · Cape Coral, FL · Member since 2023 · 392 posts · 175 votes

5mo

@Greg Scott,

Well said. There are some heavy hitters on this post and it is very fun to read all your input.

The concepts that are talked about in this post are not difficult to implement or ground breaking. They are what good investing in built on.

Look for cash flow in an appreciating market.

Spend less than you earn .

Invest for the long game.

Keep promoting this type of investing to the new investors. No new concepts, just concepts proven over time.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

5mo

You're basically stating beta and volatility in these markets.

Austin & Miami are still appreciation-based markets. That is not synonymous with them always appreciating. If you want the price volatility, higher/lower beta-- these are the primo markets. You’re right that cash flow provides the margin of safety to survive a downturn, but what you’re describing in Austin or Miami isn't a failure of the model--it’s just beta in action.

They overcorrect in both directions—supply rushes in when demand spikes, and prices crater when demand cools. For an investor, these aren't "bad" markets; they are high-performance markets that require precise entry points (buying the oversupply) rather than passive holding.

Your Midwest vs. San Diego example, we have to look nominal vs percentage returns, rent appreciation, etc. Reality is to get one San Diego's level you'd need 5x midwest houses and this is before you discount the higher count of tenant, capex, opex risks.

And we really need to understand the difference between intrinsic and extrinsic value. The intrinsic value of the San Diego lot alone carries more weight than a MW lot + house. Cash flow isn't a market soul; it's a measure of your leverage and basis. You can create cash flow in Miami with a lower LTV and wipe out cash flow in the Midwest with too high of a LTV. The ability to service the debt while waiting for the extrinsic factors (zoning, migration, infrastructure) to drive the appreciation curve is where it's at. If you have the DSCR to survive the 'Austin dip,' the high-beta market will almost always outpace the utility market in total wealth over 20 years.

In totality, you want to invest in these high beta markets at the right time. And fundamentally, you want to stick my other main point in life....

Don't own things that own you.

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John MorganPro Member

Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes

5mo

My first 19 SFR were in decent appreciating neighborhoods in the DFW area. Cashflow wasn't good the first 5 years after I bought them, but appreciation was pretty good. My last 18 SFR were bought in a small crime ridden lower income city in NE Arkansas where the cashflow is good but appreciation is weak. I'll take high cashflow in the hood any day. lol

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Joseph Neri

Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes

5mo

Most people pick a side -- cash flow OR appreciation. In my experience, the families who actually build lasting wealth do both at the same time.

Here is the part nobody talks about. If all your money is locked up in equity or sitting in a bank earning almost nothing, you have no flexibility when the right deal comes along. That is why cash flow is greater than accumulation. You need money that is liquid AND growing at the same time.

I have seen working families set up what I call a private reserve account. The money grows uninterrupted, tax-advantaged, and you can access it when you need it -- whether that is for a down payment, covering a vacancy, or jumping on a deal. It is not an investment -- it is a strategy. And it works alongside whatever market approach you choose, cash flow or appreciation.

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Marc OliverPro Member

Member since 2025 · 34 posts · 13 votes

5mo

Being in a market that has seen more appreciation than cash flow in the past, I think that is now changing (Phoenix). There is a ton of inventory coming into markets. Some of the sub markets here are having to offer 3 months of free rent just to get people to sign. Areas like Glendale and Phoenix in particular but others like Tempe and Scottsdale are having to offer at least some incentives to get lease deals signed. Until that inventory is absorbed that will be the norm. With immigration numbers going lower it's hard to know when that will happen but my opinion is at least 2-3 years. Because of that I find it hard to explain or see appreciation on properties and if there is even any, I see that in the 1-2% area max, especially because at the same time I see rental rates lowering or remaining the same. For both the appreciation and the rental rates, I see this being a 2-3 year problem.

For those reasons I can't justify taking on a property without at least some form of miniscule cash flow at minimum. Again it's not life changing at first. It's fairly negligible, but regardless, it has to be positive. Sellers of multi's are still holding out to get their money back on properties purchased from 2021 to 2024 but that is definitely starting to change and many will and are looking at taking a loss.

Builders are seeing the market and adjusting. Talk to any multi family real estate teams here and they will tell you that new builds are slowing to a crawl which will push absorption, stronger landlord position and then eventually a further push for more development once that's occurred, to happen.

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Morgan Weiss

Member since 2026 · 64 posts · 28 votes

2mo

Greg's dichotomy-bust holds up under an even harsher test: run the cashflow-vs-appreciation comparison at the census-tract level and it mostly stops being a between-market question at all.

I pulled 2024 ACS tract medians (annual gross rent ÷ home value as the rough cashflow proxy) for markets named in this thread. Marion County (Indianapolis), the archetypal "cashflow market": tract gross yields run from ~4.1% at the 10th percentile to ~12% at the 90th — a 7.8-point spread inside one county. The gap between the median Indianapolis tract (7.0%) and the median San Diego tract (3.5%) is 3.5 points. So the yield spread inside the cashflow market is more than double the gap between the cashflow market and the most extreme appreciation market anyone cites. Against Miami-Dade the between-metro gap shrinks to 1.6 points, and roughly a quarter of Miami-Dade tracts out-yield the median Indianapolis tract — the "appreciation market" out-cashflows the "cashflow market" on a fourth of its own turf.

Appreciation splits the same way. 2014→2024 change in tract median value across Marion County runs ~+55% at the 10th percentile to ~+160% at the 90th. That 106-point within-county spread dwarfs the ~23-point gap between the Indy and San Diego tract medians (+86% vs +109%), and about a quarter of Indianapolis tracts appreciated more than the median San Diego tract. Travis County (Austin) is even wilder — ~+80% to ~+260% across tracts — so whether an "appreciation market" actually delivered depended mostly on which part of it you bought. And the Midwest both/and point checks out directly: the top-yield quartile of Indy tracts (roughly 9%+ gross) still put up a median +80% over the decade. High-cashflow tracts that also nearly doubled, in the market everyone files under cashflow-only.

Caveats so nobody over-trusts this: gross rent-to-price, not net; ACS tract medians skew single-family and are small-sample, so use them as a screen, not underwriting; and "appreciation" here is median-value change, not repeat-sales — which is also why metro-level Indy-vs-San-Diego rankings flip depending on dataset and window. The metro question is genuinely less stable than the tract one.

All of it reproduces free on data.census.gov (B25064 gross rent, B25077 home value, at the tract level).

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Ryan RomingerBusiness Member

Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes

2mo

I tend to agree that the best long-term investments aren't purely cash flow or appreciation plays, they're properties with solid fundamentals that offer a bit of both. In markets like Indianapolis, I've seen well-located rentals produce steady cash flow while also benefiting from appreciation over time. Chasing either extreme can work, but strong neighborhoods with stable demand usually provide the most consistent results.

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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2mo
Quote from @Ryan Rominger:

I tend to agree that the best long-term investments aren't purely cash flow or appreciation plays, they're properties with solid fundamentals that offer a bit of both. In markets like Indianapolis, I've seen well-located rentals produce steady cash flow while also benefiting from appreciation over time. Chasing either extreme can work, but strong neighborhoods with stable demand usually provide the most consistent results.

This is so accurate right now. Ryan, what are your thoughts on Haughville and Riverside?
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Ryan RomingerBusiness Member

Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes

2mo

I think they're definitely block-by-block markets. I've seen some solid opportunities there, but I always encourage looking closely at tenant demand, nearby redevelopment, and the condition of surrounding properties before buying. Strong due diligence is especially important in those neighborhoods.

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Cashflow markets vs. Appreciation markets - Fact, Fiction, Danger

Cashflow markets vs. Appreciation markets - Fact, Fiction, Danger

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