Appreciation or cash flow: if you could only build on one, which would it be?
Quick one for the forum brain trust.
Zillow just reported that a record 242 cities now have starter homes going for a million bucks or more. Meanwhile, the typical starter home nationwide is still under $200K. The gap between expensive markets that appreciate and cheap markets that cash-flow has never been wider, making right now the perfect time to relitigate the oldest argument in real estate.
So here it is. If you were buying rental number one today and could only optimize for one thing, which would you pick:
A) The pricey appreciation market. Thin or negative cash flow now, but you're betting on long-term equity and rent growth.
B) The affordable cash-flow market. Money in your pocket every month, slower appreciation, and easier to sleep at night.
No "it depends" allowed. Pick a side and tell me why. I want the reasoning, not just the vote, and bonus points for a real number from your own portfolio.
I'm asking because I'm putting the best answers in Thursday's edition of the BiggerPockets Investor Brief, in front of the whole list. If you've got a take that'll make people rethink their strategy, this is your shot at the spotlight.
Garrett
Most Popular Reply
B all day.
I manage about two dozen rental doors here in Nashville and I can tell you exactly what happens when someone buys for appreciation only. They call me panicking when rents dip $50 and they can't cover their mortgage. That owner is the hardest client to manage because they never planned for the property to actually perform on a monthly basis.
Cash flow keeps you in the game long enough to benefit from appreciation anyway. I have owners who bought in Antioch and Hermitage five or six years ago when everyone called those areas too rough. They bought for the numbers. $1,200 rent on a $180K house. Now those same houses are worth north of $300K and rents are pushing $1,600. They got both sides of the coin because they could afford to hold.
The appreciation chasers who bought in the Gulch or 12 South for $600K hoping to Airbnb their way to profit? Half of them sold at a loss when Nashville tightened STR permits. They couldn't hold because the monthly math never worked.
Cash flow is your oxygen supply. Appreciation is the view from the summit. You don't get the view if you run out of air on the way up.
Real number from my portfolio: one of my owners nets about $400/month after all expenses on a $195K purchase in Madison, TN. Boring? Sure. But she has held through two rate hikes and a tenant turnover without ever asking me to discount rent or sell. That is the power of buying the math first.