Cashflow and Appreciation... Can they Coexist in CA, AZ, NV???

Question

I am based in San Diego and I am looking to invest in a market outside of my area. I would like to find a market that is (at least minimally) cash flow positive from the jump, but I am also very interested in appreciation. Am I looking for a unicorn? Or are there markets where this exists in CA, AZ, and/or NV?? Thanks in advance for the help!

Tim Ryan · Answer

Hey Ryan,

I need to tell you that even right now you can have cashflowing and high upside deals in an emerging market... it requires serious market research and networking, many trips to the market, establishing local connections as an outsider to build your management team and get the first look at deals, finding the right people to build your property management company and represent and promote your brand, establishing relationships with banks and identifying the best financing options and applicable grants, and designing/building the value adds that raise rents and property value.

I did all of this work so that you wouldn't have to. Lets talk

Dan H. · Answer

Cash flow is usually inverse to expected appreciation.  Why?   Because the RE market is an efficient market.  The price reflects numerous criteria.   Two of the primary criteria is expected long term appreciation and expected risk.

Therefore, markets with higher appreciation expectations typically start with poor cash flow (think coastal So Cal, NYC, etc.).   Properties with good cash flow typically have poor appreciation expectations and historically poor appreciation (think many Midwest locations).

Historically there is a poor relationship between initial cash flow and actual cash flow achieved over a long term hold.  Note a market with greater rent appreciation will always eventually have better cash flow (assuming no extraction of value and expenses are increasing slower than the rent appreciation).

Cash flow can pay the bills, but appreciation has historically done better at building long term wealth.  I am in the market you live.   I have holds that we’re purchased with great timing and poor timing.  Our lowest appreciating property has achieved over $1700/month of value appreciation.  Our best properties have achieved over $4k/month of appreciation.  Everyone of these properties today has better than 1% rent to purchase ratio.  If you require cash flow today, San Diego is a difficult market.   If you are more concerned about overall return or long term wealth creation, San Diego is a great market.

In CA there are markets with better cash flow than the high appreciation markets: Imperial County, Fresno County, etc.  In general, they are inland markets comprised mostly of blue collar jobs.  They are cheaper, because historically they have not experienced the same appreciation as the Coastal Ca RE markets.

Good luck

Ben Rhodin · Answer

Hi @Ryan A Shumaker! As Luke pointed out above, finding cash flow in a high appreciating and hot market isn't impossible. You just need to get creative! It's about finding those creative strategies that will increase the cash flow potential of a home. As Luke said, you can do rent by the room which is a great strategy, and typically will yield the greatest cash flow. Other strategies include... finding a way to split a single family into multiple separate living spaces (The main floor, and basement. or converting a garage, or an existing ADU), Short term rentals (just be careful with city regulations), or furnished mid-term rentals (Travel nurses, or other contract-based workers). These are only some ways that are possible, but it will come down to spending the time and looking at properties in a different way than just a traditional rental. I personally love the multiple living spaces model, as it is not a ton more management, and it gets you the benefits of multifamily without the price point. Just make sure to verify any regulations such as occupancy, with the city prior to doing anything!

Luke Trovinger · Answer

Hey @Ryan A Shumaker! I am not in the markets you mentioned here, but live in Denver which is also seeing some crazy appreciation lately. Something that you could look into would be renting by the room. This method will likely give you higher cashflow than a traditional rental. Since you'll be out of state, you'll want to be sure to link up with a property manager that understands rent by the room, and make sure that you follow local laws regarding unrelated tenants (unrelated occupancy). This will likely vary city to city, but is usually easily found via the city or county's website. Renting by the room is a great way to capitalize on that appreciation while also being able to cashflow.

David Avery · Answer

Arizona, Phoenix Real Estate market and economy tops in the country!

Tristan Miller · Answer

How about the central valley? Bakersfield/Fresno are on value lists.

Ryan A Shumaker · Answer

Great idea... thank you!

Ryan A Shumaker · Answer

@Tim Ryan I am very interested in what you have to say... please share.

Ryan A Shumaker · Answer

@Dan Heuschele I appreciate the info and inspiration through your alternative POV. Very honest and eye opening.

Ryan A Shumaker · Answer

@Andreis Bergeron for sure! Please let me know what you have in mind.

Cashflow and Appreciation... Can they Coexist in CA, AZ, NV???

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