Cash Flow vs. Appreciation

[Will Barnard]

Many have argued/claimed here on BP that cash flow on residential properties is of vital importance and investors can not put food on the table with appreciation. I disagree. Once you have built a business with many rentals, you could sell one or two, or as many as necessary each year grabbing the gains from it to live off. This is not to say that you should not have positive cash flow on residential properties, you should. Only to say that it is not the only income source form the property.

Another claim is that you must buy at huge discounts to turn a profit in residential RE. Although I agree getting a huge discount is advantageous, it is not the ONLY way. Just because you buy a sfr for $30k and it appraises for $50k, does not assure you have 40% equity, nor does it assure you will turn a profit on the sell down the road. In fact, in many cases, the $30k you paid is all it is really worth and the so called equity in that area will vanish. What is important is the demographic studies: Strong diverse economy, strong job grwoth, improvement in infrastructure, strong potential appreciation, reduced vacancy trends, ratio of supply & demand, and an undervalued market.

I have read here that some buy in lower income areas at 60% of the current value in places that show poor demographics where population is decreasing and jobs are leaving. So just because you can buy at 60% of value today and turn positive cash flow, does not assure a profit down the road. Who will rent the unit when the supply beats demand and when there are no jobs.

I understand and believe that becoming wealthy from cash flow on residential properties is most likely not going to happen. True wealth is obtained from the appreciation and many tax benefits from residential RE investing. Although I beleive in cash flow, and always strive for it, the true ultimate goal is to eventually sell the residential property for large gains and defer/avoid taxes as permitted by law.

Commercial property is where wealth and long term residual income lives. When purchasing a commercial property, in essence, you are buying the cash flow. In fact, it is valued based on it's performance and not what the unit down the street sold for (comps) like residential is.

[Will Barnard]

Your housing chart you posted is absolutely useless. It represents every house, in every city, in every state, over the given period of time. That has nothing to do with particular areas in which one investor has their properties. The media is constantly doing that now, "the national housing market", etc, etc. It is just plain BS. Not to mention we were not discussing inflation. If we were, I could make the same argument for your $100 cash flow. In 20 years, that $100 will only be worth $40.

Thanks for visiting my website. For the record, my website lists many parts, but not all of my business. For one, yes I sell properties (mostly new construction) which I too have purchased, and not just to a rookie, but to anyone qualified in which the investment fits their agenda. The properties I sell (duplex/4-plex for example) do have cash flow. You can argue all you want that they don't and spout off all the rules you desire, but it does not change the fact that I, and my investors, are enjoying positive cash flow from these units. I run a landlord business as well, as I have many doors in various cities. Yes, they cash flow, and most are in a position to have future growth potential. Not every one of my sfr's cash flow, as I still have a few which I bought when I started out and made some minor errors. It happens to us all.
I also teach people how to invest with IRA/401k funds and how to use other peoples IRA's, etc. I attend meetings & RE clubs where I look to meet others who I can do business with. I have a radio show where we teach people about RE investing and have guest speakers who are professionals in their respective fields. I am constantly looking for commercial properties to purchase to both flip as well as hold. I deal with contractors and builders who can build a specific product in a specific area at discounted prices. I do this to buy and hold and sell the balance to investors as I am not financially able to hold them all. At least not yet.

Now that I have answered your question, why don't you tell these good forum members why you consistantly attack anyone who does not conform or agree with your business criteria or your rules (50%, 2%, etc)? Why not admit the fact that you believe that your business is the only thriving landlord business and that BP is for landlords only, and that no one can survive in RE unless they invest like you? (If you say this is not true, why do you always bring up "landlording" no matter what the thread topic?) I am sure you will deny these statements, but your many, many previous posts in many threads shows the same thing over and over again. In fact, you have a few paragraphs in which you start out by saying that someone clearly does not understand cash flow, etc, etc. and you have posted this same thing multiple times. (You must copy and paste or else you are a heck of a typer)

You are not doing anyone here a service with your attitude. In fact, you limit the many forum members from speaking there mind as they are afraid to come under your attacks. I obviously am not, which is one of many reasons why I am still here posting. I believe this site to be a great asset to both new and seasoned investors alike and would hope you would keep your comments positive and educational rather than attacking not just me, my business, my properties, but others as well. I know you will claim that you are not attacking me, but your posts are proof enough. This thread in which I started was to have a conversation and opinion between cash flow and appreciation. You choose to turn it into a question about my business, my properties, and my knowledge. Does that make you feel better about yourself and your business?

I am tired both physically, and of this conversation, so I am going to bed.