Bad idea to put all your money in and hope for appreciation?

Question

I own two properties, one is my primary and the other is a rental. Currently, my sister is my tenant and underpaying the market value but it was in good conscious to help a family member during the covid pandemic and I can trust her to take care of the place. Basically, I'm breaking even or maybe even losing a few hundred a year but it has great equity in it. Being that the real estate market is increasing, I want to purchase a third property before the market gets too crazy and trying to beat inflation. I am having a hard time getting a loan or even refinancing because my 9-5 income is too low, BUT I have a good amount saved up in my investment funds. My two properties are in California and I'm considering investing in a SFH in Houston, TX, for my third rental property.

Since I can't get a loan or refinance, is it a bad idea to put all my saved hard money into a SFH and buy all cash? My goal is not really for cash flow but to build some appreciation out of it while someone else is renting and paying the mortgage for me.

Also, is Houston, TX a great city to start investing in out of state? Any other suggestions are greatly appreciated.

Thanks BP team!

Since I can't get a loan or refinance, is it a bad idea to put all my saved hard money into a SFH and buy all cash?  My goal is not really for cash flow but to build some appreciation out of it while someone else is renting and paying the mortgage for me.

Also, is Houston, TX a great city to start investing in out of state?  Any other suggestions are greatly appreciated.

Thanks BP team!

Jay Hinrichs · Answer

nothing wrong with paying cash for a rental if it gets you the return your looking for.

to hope for appreciation in a market with little to no historic appreciation might not be the smartest thing.

but to invest in a market were you have researched and have a good idea that there will be apprecation based on ecnonimic factors is where the money is made in this game.  UNLESS U can borrow and scale then cash flow is more important so you can use that income to pay your debt.

Bruce Lynn · Answer

I would not put all your cash into one type of investment.   Diversify some.  Remember stocks are fairly liquid if you need cash.  Probably can get it in many cases the next day or within 2-3 days.

Houston is probably a great market, but lots of flooded homes there from the Hurricane so you have to be careful about that.

You might look at other growing cities like San Antonio, DFW, Sherman-Denison, Denton, or other places in North Texas.

Banks are conservative and you probably should be too.  If they won't give you a loan, they're trying to keep you out of trouble.

Nathan Gesner · Answer

I'm not a number-cruncher, but this seems pretty simple.

If you pay cash for one $100,000 home and it appreciates $20,000 in two years, you've earned $20,000 or a 20% return.

If you pay 20% down on five $100,000 houses and they appreciate $20,000 in two years, you've earned $100,000 or a 100% return.

I'm no expert on the future (is anyone?) but it seems to me we've been riding a bullet-proof wave for quite some time and it can't last forever.

Bjorn Ahlblad · Answer

It is always risky to put all your eggs in the same basket. To make money from appreciation you need to have enough money so can never be forced to sell, and you need to be invested in the right place. Even in Silicon Valley a hundred miles can make all the difference in the world. The investors who bought in 2000 would not have lost everything in 2007 if they had sufficient access to capital. Cash flow can be safer but appreciation can be mind boggling.

Julie Chai · Answer

I'm assuming nearby good schools,  shopping areas,  business centers are economic factors to consider the appreciation increase? Is relying on a local real estate agent to educate me on the area and give me more insight to where a good investment would be, a big no no?

How is investing in Temple, TX?

Taylor Dasch · Answer

Texas in general is pretty good for cash flowing, I havent done any research on Houston, Also its best to do the research yourself so you can see what works for you, talk to people who invest there, and make a decision.  The most important thing for me is playing it safe and having reserves in case the market does crash or It takes me longer than expected to find a good tenant.  I am currently buying right now, as I am with David Greene in thinking that inflation will keep occurring, If the $ is in my bank account it is just becoming worth less. With that being said, I wouldnt buy anything that doesnt cash flow really well. Its all in your goals. Let me know if you ever need any help! I invest in Temple, TX.

Bad idea to put all your money in and hope for appreciation?

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