Cash Flow vs. Appreciation???

[Rich Davis]

It seems that when listening to Bigger Pockets podcasts, I hear the same logic, both from the hosts and the guests (mostly), that as a midsize (5-20) multi unit investor, Cash flow plays a secondary role to appreciation.  That appreciation upon exit is where the real money gets made, and that cash flow is simply a little gravy along along the way.  

I'm calling BS.  I do the exact opposite.

My strategy is to find optimal cash flow investments, and any appreciation at exit is the gravy.  So far so good. I've got 32 Class B doors in Class C markets and and cash flow $6K/door/year. 

When you stop worrying about appreciation, you'll wander into markets that you might have avoided. Even today, I'm finding properties in a Class C town, with 15%-17% CAP rates. In this particular market, the properties won't appreciate much over the next 5 years, maybe 10%-15%, but with that kind of cash flow, I'm good.

THOUGHTS?

[Gino Barbaro]

@Rich Davis

It's a function of the market cycle. In a buyer's cycle, there is more cash flow. As the cycle lengthens, the cash flow decreases. 

Usually, the exit, whether it's a refi or sale, should produce more gain than the cash flow. We own 1,700 units, and have refinanced the majority of the portfolio. 

You need to buy for cash flow. Cash flow gets you out of your job, equity keeps you out of your job.

!00% agree with chasing high caps and cash flow. Good luck collecting rents, keeping tenants, and trying to appreciate. I was part of that game years ago.

We focus on PPU, profit per unit.