I'm new to the Real Estate Investing world. I haven't made the transition to stepping out and shopping for rentals yet. I'm still reading and educating myself. But I am curious. Do you guys invest for cash flow or appreciation or maybe even a mixture of both?
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
@Victoria Stokes In buy and hold, cash flow is key. In fix and flips, you are looking for forced appreciation.
When I look at buy and holds, I want both cash flow and appreciation. Meaning, I am looking for properties need renovation (although typically not as much as a fix and flip) and I can get more rent when renovations are completed. This method takes more work, but creates larger returns, and creates more options upon exit.
I always invest based on cash flow. Never appreciation. Appreciation can fluctuate up and down. If you don’t have cash flow you don’t have a good investment.
Rental Property Investor · Collingswood, NJ · Member since 2016 · 282 posts · 116 votes
6y
@Victoria Stokes I agree with @Kenneth Garrett. I'm just getting started as well but for me, my number 1 criteria are for the property to cash flow. I like to think of appreciation as the icing on top.
Rental Property Investor · Bristol, CT · Member since 2016 · 30 posts · 17 votes
6y
@Victoria Stokes I think most will agree that investing for cashflow is the smartest thing in this market right now and in general.
When you can get appreciation, it’s icing on the cake, but it’s not guaranteed. If you cashflow from day 1, it will always cashflow unless there’s some catastrophic increase in expenses, but it won’t always necessarily appreciate. This will vary largely depending on the market you are in.
I definitely agree with everyone on investing for cash flow. Being able to create a stable foundation with cash flow, which is at the very least foreseeable rather than appreciation, which is still dependent upon the real estate market seems the best way to go.
From what I've read so far, it seems those who rely primarily on appreciation are in a pretty strong market where they know the wait will be worth it
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
@Victoria Stokes In buy and hold, cash flow is key. In fix and flips, you are looking for forced appreciation.
When I look at buy and holds, I want both cash flow and appreciation. Meaning, I am looking for properties need renovation (although typically not as much as a fix and flip) and I can get more rent when renovations are completed. This method takes more work, but creates larger returns, and creates more options upon exit.
Investor · Indianapolis, IN · Member since 2020 · 34 posts · 11 votes
6y
@Victoria Stokes I always invest in my buy and holds solely on cap rates. My portfolio has averaged ~12% caps over the past 5+ years, and I have seen that consistency throughout my career. I would never invest based on appreciation because there are so many factors out of your control. Rental properties are meant for consistent and stable cashflow returns that can provide income throughout any market cycle, and should complement other investments such as a stock portfolio that will fluctuate much more through different market conditions.
Any appreciation is a bonus, but focus on driving cashflow from day one, and you will set yourself up for success over the long run.
Rental Property Investor · Logan, UT · Member since 2017 · 47 posts · 19 votes
6y
@Victoria Stokes
I agree with @Evan Polaski. When looking for multifamily rentals, I look for both cash flow and forced appreciation. Or in other words, a value-add deal. I am able to have good cash flow, then fix up each unit, increase rent and the value of the property. You can get great returns using this strategy. But never invest solely for just normal market appreciation.
We are older in age. We invest 80% for cash flow. We buy 3br 1 ba. Trying to get as close to 2% as possible or 300 a door a month. 15% cash on cash returns.
Next year I hope to start buying for my kids and then the goal will be appreciation
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
Both, but cash flow comes first. The business of the investment should be able to fully support itself and pay us to own it. Additionally, forced appreciation value add is a key component of most commercial real estate strategy, and ours is no exception
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Victoria Stokes - I'm currently investing in a high cash flow / zero appreciation area. It's been a great way to accelerate my growth and build a solid portfolio. The only issue is that the exit is difficult and the end day payoff is severally capped.
As I move forward, I'd like to buy in better markets where I'll sacrifice some cashflow but get healthy appreciation.
Or skip all the crap, land my 300+ unit apartment complex and call it a day :D
Neither. Mortgage pay down is the primary concern.
In order to ensure that, long term cashflow is required. In order to gain significant wealth more quickly, invest in an area that has the best chance to appreciate based off economic fundamentals.
GDP increase >> jobs >> population increases >> rental demand increase >> vacancies dropping >> rents increasing >> increased sales demand >> property appreciation
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
6y
This is totally market driven. If you live/invest in an area that has high appreciation you will have low cash flow in the first few years .... if you invest in a high cash flow area you may see no appreciation. You can make money many ways - the key is knowing what you are investing in and what your market supplies.
In my area we have decent cash flow and good appreciation. In my old hood, california it was low cash flow in year 1 and 2 but really good expected appreciation.
I definitely agree with everyone on investing for cash flow. Being able to create a stable foundation with cash flow, which is at the very least foreseeable rather than appreciation, which is still dependent upon the real estate market seems the best way to go.
From what I've read so far, it seems those who rely primarily on appreciation are in a pretty strong market where they know the wait will be worth it
In commercial multi family the value is based on what cash the property throw off. So not comps or other market factors. This is why multi family is so amazing at building wealth.
Rental Property Investor · Los Angeles, CA · Member since 2018 · 84 posts · 54 votes
6y
I invest for BOTH. Look for Appreciation in the West Coast and invest for Cash Flow in the mid-West. You will have a PERFECT world:) But if you have to choose one, Cash Flow is more priority.
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
6y
Both work but its not often that I invest for both on the same property. There might be a little overlap but more like 90/10. Cash flow first with appreciation as a bonus . On a non cash flow property I am way more concerned with the comps. It is less about appreciation and more about current liquidation value.
Property Manager · Raleigh, NC · Member since 2014 · 728 posts · 596 votes
6y
@Victoria Stokes
unless we get another 2008 downtown, then appreciation buyers are out cash flow and appreciation. cash flow is king, unless you are buying knowing you will flip for appreciation.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
6y
I did real estate since the early '81, by accident and design, I wind up profiting more in appreciation than cash flow.
In NYC, I picked up triplexes in the 80's for below $200K, down payments of 30% or better, managed to cash flow around $10K per property per year, and over 20 years, made $200K thereabouts for each. When I sold them before the crash of 2006 up here, appreciation was nearly $400K for one, and $500K for the other, sold and took my profits If appreciation is icing on the cake, the icing is bigger than the cake.
Then I looked at cash flow areas outside of NYC. Invested in foreclosed condos in Springfield MA, $125K condos at foreclosure auction sold for $40K. Put in $8K down, rents for $600/month, $100/month after mortgage, condo fees, PM fees (sister is my PM). ROI of $1,200/year on $8,000 is not bad, but in the over all picture not much so I left the cash to accumulate up in Springfield. Ten years later, the market went back to normal, the condos went back up to $100K again, and I took my profit. Bottom line, cash flow over 10 years is $12K, and appreciation is $60K. Again appreciation is five times that of total cash flow. So I'm wondering, is the appreciation the icing, or not.
My overall experience is I did better in appreciation. But I stopped investing in 1986 when the market crashed, ran short of money, then when the market bottomed out in 1992-1993, bought foreclosures in NY and MA. The foreclosure in NY I got in 1993 at auction for $200K, now has an ARV of $1.3 million, I still have it, areas is gentrifying, and building new duplexes, half a dozen in the past year, a block from me asking for $2 million. Here again, appreciation is several times that of cash flow. But to succeed in it, you have to time the market.
I always invest based on cash flow. Never appreciation. Appreciation can fluctuate up and down. If you don’t have cash flow you don’t have a good investment.
I have some not "good investments" that have made me 7 figures. I must be doing something wrong.