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Updated over 10 years ago,
Cash flow or appreciation, which should I pursue next?
I invest with a buy and hold strategy in two very different markets, about 100 miles apart, and we're analyzing where to put our money next.
Our first SFR is in an inner suburb of KC, a fantastic location for young families or new graduates. The area has had great appreciation in recent years (our property has increased an estimated 20% in value since we purchased it at the end of 2011) and shows no signs of slowing down. Several new retail centers (IKEA, just down the road!) as well as proximity to downtown work and employment hubs in the outer 'burbs make the location an easy rental.
Cash flow on the property is around $250/month, with a rent multiplier of about .85 (using our purchase price from 2011). I think we can increase rent by at least $150/month at the end of the current lease, which would get us closer to a .95 multiplier.
Our second SFR and our duplex are in a small city/college town where property prices are much lower and rents are fairly high. The economy there is growing slightly, but pales in comparison to KC. The university in town has always been the stabilizing factor. Our SFR there is cash flowing about $200/month and has about a .85 multiplier (my sister is the tenant and we remodeled the kitchen with above market finishes, so we knew we were putting in more cash than necessary), but, in general, getting a 1-1.5 multiplier is really easy there.
Our duplex was a steal and we're getting 1.5 multiplier on it (one unit was rented below market by about $250 when we bought the place but we are honoring the lease for as long as they want to stay, they are great tenants) and the place is cash flowing upwards of $600/month.
Cash-on-cash is much better in the small town, as good SFRs cost about 1/3 (or less) than they would in KC and rent is closer to 1/2.
I'm curious to know what the BP community thinks here. Should we hang onto the property in KC to take advantage of the potential for appreciation and rent increases, or do we sell it and invest in more properties in the secondary market that have higher cash returns but very little appreciation? Thoughts on staying diversified in two markets if we know them both well? Would you add property in the growing economy (KC) market so as to not be overly invested in a smaller growth market (with the stability of a mid-level university in town)?
Interested in everyone's thoughts!