COC w/no Appreciation in Albany NY

[Stephen Buhrmaster]

I'm ready to purchase my next investment property in the ALBANY NY market and Most of what I'm seeing are a lot of $200k 2 families with decent COC, but not much upside on rents or appreciation.

How do you view those sort of deals, with good COC but lacking some of the other multipliers for downstream revenue?

[Marcus Auerbach]

@Stephen Buhrmaster - I am going to take an unpopular position on this: cash flow has been hyped up and is by itself widely miss-understood and overrated. Josh Dorkin planted that seed a long time ago, because he has seen too many CA "investments" with negative cash flow, which makes them a spectulation bet and not an investment. So he started banging the cash flow drum and it became gospel.

Positive cash flow is a requirement by definition for an investment and it keeps the lights on, pays the bills and keeps you growing. However, nobody ever created wealth through cash flow. The reason I say cash flow is being miss understood is, because everyone is looking for their freedom number - how many doors to pay for my never-ending vacation?

Wealth is created through appreciation, both forced and natural, equity (de-leveraging and acquired equity) and taxes. Try the following: go to the BP buy & hold calculator, enter 1 million (=5 duplexes), use 5% for all your ratios, maybe just 3% for appreciation and rent growth - to keep it conservative. Now look at your total net after 5, 10, 20 or 30 years. Depending on how you set the numbers you can generate a million after about 7-8 years - from a million of RE (250k down). And cash flow is not the main source of that wealth..

I am sure that you can see some sort of appreciation in Albany, even if it is not much. I generally prefer an investment with slow and steady appreciation, because the markets with very high appreciation potential are per definition more volatile and therefore suggest a higher risk for your principal. - Always protect your principal! 

And you will certainly de-leverage, as long as you pay your mortgage. For me a good investment has a good balance of all all four sources of wealth and I am okay with a little less cash flow and a little more on the other three, but you should look for a good balance.