Negative Cash Flow for capital appreciation?

[Ryan L.]

Hello BP community,

I am looking to purchase my first rental property in SD, but am finding the prices to be very high in relation to potential rent prices, to the point that I may have to take negative cash flow for possibly up to 15 years before it becomes neutral / positive with the current down payment that I have.

The upside to this is that the projected appreciation in San Diego is quite high and the rate of return (IRR) could be positive in as early as 5 years and reach up to 6.5% in 20 - 30 years. Of course, these are all based on current projections / assumptions and could change down the line.

My question is, do you think it's a good idea to get a property with negative cash flow in exchange for higher capital appreciation?

The alternative would be to invest in a much cheaper rental in another state, where I could use my current down payment to get a property outright in cash and start to have positive cash flow right away. However, the projected appreciation would be much lower in this case.

Thanks so much for any insight you can provide!

Best Regards,

Ryan