Chapel Hill, NC · Member since 2018 · 6 posts · 0 votes
Greetings,
I am analyzing a deal and the cash flow numbers look good. My monthly expenses would be around $1,850/mo for two units that would return approximately $3,000/mo total. However, it is in a vacation market that seems to fluctuate more than the suburban market where I usually try to invest. So, it would likely take longer to resell whenever that time comes and the appreciation is less certain. I would plan to keep it as a long-term buy and hold.
My question is how much consideration do you give resale on your investments if the monthly cash-flow is strong vs potential appreciation and liquidity? My current properties have appreciated well and could be resold quickly but do not cash flow at the same level.
Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
7y
It's pretty hard to have both. We always go for max cash flow, as that is something we can realize right now. Appreciation is only meaningful later, is not predictable, and ONLY is recoverable upon sale or refinance. Further, it's spending power is eroded by inflation.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
7y
Vacation markets do have different supply / demand fundamentals.
You have to account for the seasonal variations for these properties. Often you get very superior cash flow for less than six months of the year. Today, with Airbnb, there are more opportunities to rent these properties easily in the off market season, as long as you adjust your pricing.
For disposition of these properties, often they sell well when the economy is doing well. And the market falls super flat when the economy is in a recession. I am not sure about appreciation, but my parents vacation home did not appreciate well over the years, compared to their primary residence.
Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
7y
It's pretty hard to have both. We always go for max cash flow, as that is something we can realize right now. Appreciation is only meaningful later, is not predictable, and ONLY is recoverable upon sale or refinance. Further, it's spending power is eroded by inflation.
Investor · San Diego, CA · Member since 2016 · 265 posts · 305 votes
7y
Michael Thurston
Even if the property only appreciates 1% per year on average, this is still an additional 5% ROI with 20% down payment (5:1 leverage).
Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
7y
@Michael Thurston. Personally I give very little consideration to resale value. Different people in different markets with different business models may factor this heavier. I’ve seen many comments on threads recently that talk about appreciation like it’s a sure thing. I think that’s dangerous. Many people have gone bust in real estate and history has shown that some of the strongest markets fall the hardest. The long timers who rode out the last downturn, which for real estate especially was severe, had enough cash flow and liquidity to ride it out.