Positive Cash flow vs property appreciation

[Anand Kulkarni]

Hi everyone,

I am newbie when it comes to real estate investing. I have a 9-5 job which covers my expenses and end up saving some money at the end of the month.

I observed a general trend that properties which are positive cash flow don’t appreciate as fast as properties which are not. For a person like me who is looking to invest with 15-20 years of horizon, should I invest in cash flow positive properties or in a property which will appreciate faster?

[Greg Weik]

Always focus your investment dollars on appreciation.  Homes that appreciate faster, do so because they are more desirable.  In my many years of property management and personal investing, the clients who typically chase cash flow, will often have properties that do not appreciate all that well, and those properties tend to be less liquid.  The factors that add to strong appreciation also benefit liquidity.  

Appreciation allows you to pull equity and buy another property, another, etc. 

The best rental properties to own are some of the more difficult to acquire.  There are not often deals out there, and sometimes you have to buy at market price - and that still can be a winning strategy if you buy the right property. 

This being said, cash flow and appreciation are not mutually exclusive concepts.  If you can find a good deal on a home in an area that has consistently strong appreciation, that would be the best of both worlds. 

When I think of cashflow properties, I think of multi-unit or house-hack.  Both of those property types/approaches have added risks and pitfalls associated with them, in my experience.  Oftentimes, I see people go into those types of properties with spreadsheet (or worse, their sales agent-assisted) projections, and the projections often do not match up with the reality on the ground. 

When I think of appreciation, I think of a single-family home in an established neighborhood with good schools and low crime.  

Advice: build a relationship with an experienced property manager if you can.  On any given home you're considering putting an offer on, check with your property manager and ask what they think of the property you're considering.  There's a good chance the property manager knows the area, knows the rental rates, understands the tenant qualifications common to the area, etc. My best clients do this and when they close, and we begin managing the property, it works out better for everyone.