Newbie here, trying to formulate a strategy. I've been reading up a lot on REI (16 books in 3 months! And counting.) My ultimate goal is long-term net worth. I'm not afraid of fixers, and I love the idea of BRRRR and multi-family. I've been looking at properties daily and crunching a lot of numbers.

The appreciation-vs-cashflow debate hits me hard because of my location, which is north county San Diego, California. I can't find anything within a 1-hour drive that will cashflow in the near-term. And long-distance looks risky due to having to build a network and rely on others for almost everything, notwithstanding much better cash flow. My income from my employer is great and we keep our expenses low, so I could go either way in the near-term. But I'll need cashflow in order to really scale.

I came across IRR (Internal Rate of Return), and it seems like a great way to cut through some of the guesswork and compare long-term returns. But what's a good minimum IRR to look for? And how to balance that with the extra pains of long-distance investing? And why isn't IRR and time-value of money brought up in more of these appreciation-vs-cashflow debates? In order to make the extra effort worthwhile over stock market gains I think I'd need a minimum IRR of 15%, but 20% looks a lot more attractive. Does that sound reasonable?

The IRR I'm seeing from local SFRs is 10-12%. Multi-family is rare around here, especially in today's market. I did look at one duplex and it was coming in around 20%, but I decided it was too risky as my first deal, for other reasons.

I'm also studying other remote zipcodes where SFR values are sub-$250k and the rent-to-price ratios are 0.8 to 1.2. In those places, IRR is coming in as high as 30%. Again, does this sound right? What IRR is worthwhile for you under different scenarios?

San Diego, California

0 Votes

5 Replies

Jump to Last Reply

IRR and investing for cash flow vs appreciation

Most Popular Reply