investing in expensive markets

[Jonathan Beemer]

investing in markets like Denver or Colorado springs. im not talking new york or california but higher entry markets.
what are your thoughts on what you should look for? strategies? is the cashflow still viable or the appreciation better?

thank you!

[James Carlson]

@Jonathan Beemer

I'll be the contrarian here and say cash flow is cool, but it's by no means the only metric by which you should judge an investment in a hot market like Denver and Colorado Springs. 

• Denver's averaged 6% appreciation for the last 40 years (and well over 10% for the last few years). At what point do we go ahead and agree that yes, in fact, you can count on appreciation over the long-term? 
  • The median home price in Denver is around $550,000. So next year, on average, it will be worth $33,000 more. Did anyone make $33,000 in cash flow this year? I bet not. 
• Also, if we're talking about risks, rents can go down as well. (Like they did by 5% earlier this year.) So cash-flow is not guaranteed, either. 
  • Now, I think cash flow is actually reasonably secure, but the idea that housing prices are super volatile but rent prices are a bedrock is silly.
• To really be a fly in the ointment here ... is negative or neutral cash flow the end of the world? If I bought a home in high-appreciating market that lost $200/mo (or $2,400 in a year), but it gained $33,000 in appreciation, I'm going to be pretty happy. (And likely rents will catch up.)

I'm not advocating buying a negative cash flowing property or buying just any old place and feeling good about it. But I do think the accepted wisdom on this site could use some questioning.

The best thing in my book is to get creative with your rental model. Buy in an Airbnb-legal city. Or furnish the property and rent it to remote workers or traveling nurses. Or rent by the room to increase cash flow. Doing so can actually break even or cash flow decently. And then you still get the long-term appreciation.

Good luck!