Appreciation = Speculation

[Isi Nau]

This seems to be a widely held mantra here.  If you buy in a high appreciation market, you're not investing, you are speculating.  That's not something I have ever heard here in Hawaii.  Probably because it's not true!  Hahahaha.  If you know anything about Hawaii, you know to buy as much real estate as you responsibly can.  This has been true since the late 1800s.  But what does history know?  I've been investing since 2002!   ;)

A closer look at Hawaii.  In 1950 the median price of a single family home was $12k.  The median price is now $760k.  So in 67 years Honolulu has averaged just over 6% appreciation per year.  I would image areas like Los Angeles and San Francisco would show similar data.

During the recent recession, most areas in Honolulu dropped around 15%.  Cumulative!  These seem to be pretty solid figures.  In 67 years annual average appreciation of 6%, and only a 15% cumulative drop during the worst financial crisis of our time.  Is 67 years not a large enough data set to have confidence replace speculation?

If 67 years of sales history can't be relied upon, then neither can rent history.  If calculating future appreciation is speculative, then so would calculating future rents, or any rents for that matter.  That's ridiculous.

In other words, just because we've seen something happen for 67 years, doesn't mean it will happen again?  Wow!  Then why even invest?  I mean speculate.   :)

(This is not about appreciation vs. cash flow.  Both are great.  This is about using data to make educated investments and to help dispel poor advice.)

[Llewelyn A.]

@Isi Nau

@Jay Hinrichs

I certainly didn't expect there to be much posting in this thread.

The majority of BP Investors that NEED cash flow because they can't afford to invest for Appreciation bias their minds to the stable and higher return of Appreciating Markets.

I recently posted about one of my properties that Returned 160% per year ROI for 17 years to demonstrate that if you used your intellect and take into account Future Value, implying calculating Appreciation Rates and future economics, you can take advantage of it and make spectacular results.

Why the prices of these assets are too high for the average Investor alone, Partnering becomes the skill needed to Invest in those markets.

Instead of having a good conversation about it, postings about taking Appreciation into Account (or as I like to say, taking Future Value calculations into Account), which implies knowing your future economics, is non-existent.

INSTEAD, most of the posts will boil down to a calculation on Cash Flow NOW, which is the 1st Year Cash Flow. And it stops there. No thought about the Future.

Funny, when I used to teach about Real Estate in NYC and talk about why you need to take into account the future economics, I emphasized it by using the animal kingdom.

If a Squirrel knows that he needs to gather nuts before the winter, implying that he is preparing for the future, why don't most of us Investors look to calculate the amount of nuts we need for our future winters?

Anyway, I don't expect this thread to grow at all! Only 5% of the people seem to get rich and 95% will remain on the other side.