Chattanooga, TN · Member since 2015 · 12 posts · 0 votes
Starting research on moving from SFRs to MF and looking at two different markets. One is higher growth market in Tennessee with good appreciation but tough to find strong cash flow properties and the other is a smaller market in Mississippi without the appreciation but with good cash flowing properties. Any advice on which market to pursue?
Realtor · Minoa, NY · Member since 2015 · 125 posts · 56 votes
9y
I'd vote cash flow every time. Appreciation is a gamble whereas cash flow helps with later financing (improving your income numbers) and is more of a guarantee even if there's really no such thing. From a morale standpoint, seeing the balance creep up in my account every month just makes me feel good and reminds me that this is building towards a healthy early retirement. Rising assessments just don't do the same for me.
Realtor · Minoa, NY · Member since 2015 · 125 posts · 56 votes
9y
I'd vote cash flow every time. Appreciation is a gamble whereas cash flow helps with later financing (improving your income numbers) and is more of a guarantee even if there's really no such thing. From a morale standpoint, seeing the balance creep up in my account every month just makes me feel good and reminds me that this is building towards a healthy early retirement. Rising assessments just don't do the same for me.
Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
9y
Cash is king. Follow it.
One neighborhood in my area produces cash flow, but very little appreciation due to the neighborhood's "war zone" quality. Not uncommon. It has high rent growth, but high vacancy. The problem is how to force appreciation when all of the other building owners are below market and not taking care of their properties. Personally, I'm not active in that neighborhood, where I'd say 80% of the properties are Class C. But some larger investors are BRRRing up the neighborhood. One large PM rehabbed a 50+ unit building into Class A-, but I don't think the neighborhood justifies much higher rents.
Rental Property Investor · Jackson, MS · Member since 2014 · 21 posts · 11 votes
9y
Charles, in my opinion, cash flow always comes first in a property. You have to wait for appreciation and you can only benefit from it when you sell or refinance the property. You benefit from cash flow day one and if it is commercial property such as multifamily, it has a direct effect on the value of the property. Just my .02
Grand Rapids, MI · Member since 2015 · 45 posts · 13 votes
9y
Hi @Charles Wood - are you looking at small multi-family that is still classified as residential (2-4 units), or are you looking at larger multi-family that is classified as commercial (5+ units)? This will determine how the property is valued.
If it's commercial, the value of the property is calculated as your net operating income divided by the prevailing cap rate for the market. As such, you might be able to "force" appreciation by increasing the net operating income of the property if there is an opportunity to raise rents or reduce costs. However, if it's 2-4 units, it's valued like an SFR and recent comparable sales of similar properties is used to value the property.
Investor · San Diego, CA · Member since 2015 · 111 posts · 34 votes
9y
I personally prefer cash flow, but I understand the question. What is your primary goal? My goal is to build enough monthly cash flow to meet my monthly expenses. If your goal is to build capital you may want to consider the other option. I personally never buy for appreciation, but I am also mindful of market trends.
I suspect you may incur less stress if you choose the cash flow route. You also will have more control over your returns. I would be careful not to invest in a downwardly mobile market, though. Ideally, a cash flow market will be price-stable.