But it doesn't have great cashflow?

A big reason people want to invest is cashflow. Sitting on the beach, hiking in the mountains, travelling whenever you want. Having enough cashflow to live on is pretty sweet!

So should you buy properties that don't make great cashflow?

I think so but want to explain some of my experience first. Whenever I've invested solely for cashflow it's been more work, more headache and the properties don't appreciate as well. Typically those properties look great on a spreadsheet but when the end of the year comes and I see my tax returns I find out I didn't make near as much as I had thought I would or the spreadsheet told me I would.

I'm not saying don't buy rental real estate for cashflow, because I still do that and will continue to. I'm also not encouraging you to buy something that doesn't cashflow at all or you have to pay to hold onto. Investing only for appreciation or speculating is generally not a good idea, especially when you don't already have more passive income than you need.

I'm talking about buying in areas that don't have great cashflow. Just because something doesn't create a 10% Cash on Cash (CoC) doesn't mean it doesn't have higher than normal returns. The great thing about real estate is that we get to make money in multiple ways and they are cashflow, appreciation, loan paydown (assuming you use leverage) and tax benefits.

Let's take Austin for example. 

I analyzed a property that I wanted to make an offer on the other day that was .47% CoC return. That's nowhere near what I'd like to see out of an investment. Might as well invest in an ETF right! That's only $180 in cashflow over 5 years assuming the rent never goes up.

But let's look closer.

Let's assume a light rehab increases the value from $600 - $650k. $10,000 spent in the right places can go a long way when you get a good deal. Assuming a 5% appreciation rate the property would be worth $830k in 5 years. In 5 years we will have also paid down roughly $53,000 in mortgage from making the payments. Over that time period you would have also been able to depreciate right around $100,000 of the property and used that to bring down your taxable income. 

So if you sell and do a 1031 5 years from the purchase you would have $273,000 to put to work on a bigger, better property. Even if you did the same thing again you cashflow goes way up, but you now have $273,000 to invest how you want and achieve your goals. 

My biggest point here is that investing is a marathon, not a sprint. In the long run properties in good areas that may not have as much cashflow right off the bat will make you more money and allow you to invest for cashflow only later on when you have enough to actually make a difference. If you start without a long term mindset about it you might invest only for cashflow and look back 10 years later and be frustrated with how much upside you missed.