More cash flow or more appreciation, which would you choose?

[Jack B.]

Though the title doesn't allow enough space to fully type out a bit more detail, it's not quite as simple as picking cash flow over appreciation. Consider these two scenarios and their risks and issues.

Two scenarios in my hypothetical example:

Option 1:

You have 3 million to invest. You buy 38 properties (37.5 rounded up) paid in full at 80K a piece, each cash flowing 1K a month after all expenses including vacancy, capex, etc. 

456K cash flow a year. Appreciating 300K a year. (3 million in RE at 10% a year). Since these are all paid in cash, there is little risk, and there are no hoops to jump through for portfolio loans. 

This is literally a real life example of what was possible in Tacoma WA when I bought my first house paid in full at the near bottom of the market. This IS actually possible.

Option 2

Use the 3 million to put 125K down on 500K houses closer to Seattle at the bottom of the market. You end up with 24 units, cash flowing $500 a month each. 

144K a year cash flow is what you end up with. Appreciation on the 12 million in real estate is 1.2 million a year at 10%. Risk is that it's all leveraged. You do have less properties to manage though than the above scenario but you also have to jump through a lot of hoops for portfolio loans.

This was literally a real life possibility at the bottom of the market in the greater Seattle area a few years ago. 

Which would you choose and why?

[Aaron K.]

My preference would always be to buy something that is nice enough that you wouldn't mind living in it yourself.  This allows you to get some cash flow, but also have the opportunity for appreciation, I wouldn't calculate on appreciation, but it is nice to have.