Are you willing to invest in RE appreciation with 2 caveats?

[Matthew McNeil]

The context being today's market.

Assumption: the new asset would be in addition to your existing positive cash flowing portfolio.

Requirement: the new asset’s cashflow cannot be negative.  It must at least break even at zero - meaning the property is paying for its own expenses leaving you with zero cash flow/profits. 

Premise: future payout makes it worthwhile to forego current positive cashflow.

Thoughts?

[Llewelyn A.]

@Matthew McNeil

I would add to your requirements that the Investor does NOT need the cash flow.

If they need the cash flow, then this will NOT work for them.

This narrows down the kind of Investor that should follow this strategy.

The only added Caveat I would say is that I include your JOB as a cash flow.

So if you are making a lot of money in your profession, then how is an extra $100 per month or even $1k per month going to somehow help you?

In my case, when I started out in 1997 in Brooklyn, NYC, I didn't buy for Cash Flow because that Cash Flow was just wasn't NOT needed. My Salary rose from an Entry level programmer of $32k in 1997 to well over $100k by the year 2000.

What also helped was that I lived below my means.

Combining having a good paying profession and living below my means, it allowed me to pursue Investments with Disposable money. That's actually the wisest way to invest. Invest with money you DON'T need.

This helped me to make over $10 Million in unrealized Appreciation for my Investors and myself.

Today, the Cash Flow is so crazy compared to the prices we paid throughout the 21 years since 1997, that when you look back at these "no cash flow" deals, you begin to realize that the only reason people don't buy them is because they just can't afford NOT to have the cash flow on day one.

Rents quadrupled in my Investments. The Cash Flow is ridiculous.

Over time, you get to understand that Cash Flow is something that only stays the same if you invested in something that is designed to do so like a Coupon Bond.

Because I calculate the FUTURE Cash Flows out 10 years, I fully understand the true return of the Investments and how much cash flow I will achieve.

The other thing to take into consideration is the Mortgage Balance reduction.

If your investment is at break even but your Mortgage is a fixed rate, then one day, when that Mortgage goes away, your Cash Flow increases tremendously.

When you take into account a 30 year projection of your Investment Cash Flows, you realize just how wealthy you can get by buying for FUTURE Cash Flow as opposed to Cash Flow NOW.

It's really not RIGHT to pretend that the Cash flow you receive at the purchase is going to be the same throughout the holding period of the investment. I consider that to be a very naive and kind of a lazy way of doing financial calculations.

So I really would suggest all Investors do at least a 10 year pro-forma projection business plan. The pros do it.... why not everyone here?