Importance of immediate cash flow when starting out

[Matt A.]

I started a topic yesterday about markets which are more or less likely to produce positive cash flow. Related to that- what is the opinion on how important immediate cash flow is?

I see that we want both cash flow AND appreciation. Posts here say CF is sometimes sacrificed for appreciation, while others say go for both simultaneously. My area of Seattle suffered less of a value hit during the last decline, and is well developed and stable from what I have seen so far.

Any investors who went through the first early years with negative cash flow? With a stable, appreciating area, is it to be expected? Or does every market, either slow or rapid growth, have areas which are undervalued and thus can be rehabbed and offer positive flow?

And are there ways to mitigate the hit you take when starting to invest?

I am particularly interested, of course, in what my fellow Seattleites/Washingtonians have to say!

Thanks All,
Matt

[Robert Steele]

There is a school of thought that says if your strategy is to retire on the cash flow a decade or more from now then you should be focused more on picking good properties in the best neighborhoods and less focused on immediate gain.

A class C property in a rough neighborhood might have a high cap rate and cash flow like mad but how much of that cash flow will you get to keep due to evictions and trashy tenants? In a decade from now is that house going to be desirable enough to have higher rents and appreciation? Probably not.

A solid class A or B property in a good neighborhood with good schools might have a low cap rate and barely cash flow but your headaches will likely be less and at some point in the future you will still have a desirable property that commands good rents and has appreciated.

Well that is at least how it has panned out in my experience.