Cash flow market VS not cash flow market but appreciation

[Jorge Lopez]

North Florida Pensacola Cash flow not appreciation vs Miami negative cash flow but appreciation ?

I know both market very well hard to determined what is best !!

What is your experience with this 2 markets ?

[Dan H.]

I must be the contrarian.  I question if there is an high appreciation market that is not a cash flow market for a buy an hold investment.

I invest in one of the most expensive markets in the US.  The rent to value ratio is often below 0.5%.  Most investors do better than this ratio, but the initial cash flow is pathetic, even on the better cash flow deals.  I once purchased a property that my conservative projections showed as cash neutral.  I would not be adverse to buying the right property if it was cash negative (I have not ever purchased at cash flow negative but I have made offers that if accepted would have been projected as cash flow negative on my projections).

This is buy n hold.  That implies an expectation for a long hold time.  In my market the average rent increased by over $100/month for every year from 2014 to 2019 inclusive.  My cash flow is outstanding.

What about the property appreciation?  Everyone of our units has increased in value at least $1K/month for every month of holding.  Our oldest rental dates back to 1993.  27 years * 12 months/year * $1K month = $324K.  This particular property has appreciated around $480K (so quite a bit better than $1k/month over the holding).  You would think this would be one of our better in terms of monthly appreciation, but it is not.  It is one of our worse.  It is a long ways from our best.  Our best has appreciated ~$4K/month over the holding period (21 years).

As for difficulty extracting value, I am not going to say it is as easy as cash flow that gets put into the bank by the tenants, but it is not super difficult.  It is fairly easy to refinance.  Obtaining a ELOC is a bit more challenging but is another option.  Most of our properties have had all of our investment extracted.

It is simple math that a market that has better rent appreciation will eventually have better cash flow than the market with the lower rent appreciation (assuming that the appreciation is greater than the inflation on the expenses including mortgage).

Cash flow pays the bills, appreciation can create great wealth.

BTW Berkeley has average almost $4k/month of appreciation since 2000.  Note if the average is $4k/month of property appreciation, how do you think the rents have appreciated?  My guess is they have outstanding cash flow if the RE has been owned for a while.  https://www.investorideas.com/...