Next Property - Appreciation ($650K) or Cash Flow ($170K)?

[Einar Mykletun]

Hello fellow BP members!

I wanted to ask for your advice regarding a decision I’m putting in front of myself: I’m trying to decide if my next investment property should be a play for appreciation or cash flow

I’ll try to give enough numbers and information to hopefully provide you with the ability to help provide your guidance.

My Current Portfolio

- 7 “cheaper” cash flowing properties (values ranging between $140-$210K) in Las Vegas, NV
- 2 “expensive” appreciation properties (values ranging between $650K-$820K) in Orange County, CA
- Monthly cash flow (for all 9 properties): $2,600

Other Relevant Information
- I’m currently working full time
- I have enough savings to last me more than 2 years (without a salary)

The Investments I’m Considering

Option 1
- SFH in Orange County, CA, for $650K with negative monthly cash flow of $300
- 30 year loan with 25% down payment of $187,500

Option 2
- SFH in Orlando, FL, for $170K with positive monthly cash flow of $270
- 30 year loan with 25% down payment of $42,500

Pros and Cons

Option 1

CONS:
(a) Negative monthly cash flow
(b) Large down payment
(c) Even larger exposure to market in Orange County, CA (would be 3 properties)
(d) I would likely have to sell one of my existing Las Vegas homes to come up with down payment (otherwise I’ll have too many mortgages to qualify for a new one)

PROS:

(a) Potential for larger appreciation (10% potential appreciation in 5 years of $650K vs. 10% appreciation of $170K), so I feel it is a better long term play
(b) I’m not sure if you guys typically give this much weight, but when I include the larger principle payment that would be made every month (e.g. around $800), it changes the monthly cash flow equation if one chooses to consider it, making it more attractive (long term)

Option 2

CONS:
(a) I feel it’s a weaker long term play (less appreciation potential)

PROS:
(a) Positive monthly cash flow out of the gates

General Notes
- I feel I can sustain the monthly cash flow in both cases
- I am only considering taking on the larger property (Option 1) because my other cash flowing properties provide me some buffer.
- However, I’m wary of pushing the limits too far and exposing myself to too much risk (debatable what is “too much”)

Conclusion
I'm looking for your advice/guidance about my above decision. I realize I can look at other opportunities than then two I have listed, but I feel I'll still come back to the debate about whether I want to go for a more expensive property with negative/less cash flow but better future appreciation possibilities, vs. a cheaper property with positive cash flow but less appreciation potential.

Thanks in advance and I'll try to fill in any missing info based on your feedback and questions.

Einar