Are you investing for cash flow or appreciation - greater Seattle

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Are you investing for cash flow or appreciation - greater Seattle

Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

When I first started learning about this stuff, I read many  blogs that said cash flow first, everything else is a bonus. That has been a good safety net and has helped make me FI. However, that said I've also noticed from my own experience, that of others, and blog posts here, that appreciation is where the real money is made. 

I've learned on my own that equity/appreciation can be turned into cash flow. For example I just sold a house, made 240K in two years give or take after expenses, and can now roll that profit into index funds, turn key properties, etc.

Yes, appreciation is a bit more risky, but I wouldn't call it gambling if you know the economic fundamentals. 

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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y

I am past retired, any appreciation my investments get will be a consideration for my kids not me. I do the 'could I sell this if need be' gut check but not more. So pretty much it is all about the cash flow that being my income source, and without that I'm a greeter at Walmart!

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  • Jake Alger
    Real Estate Broker · Bellevue, WA · Member since 2017 · 172 posts · 107 votes
    8y

    Hi Jack,

    In our area (Seattle), appreciation has played a major factor in my investor clients purchasing decision.  It's much more difficult to cash-flow properties right now in our region.  That doesn't mean it can't be done, it's just very competitive and homes have to be moved on quickly.  We have an influx of cash from overseas hitting Seattle and most of the buyers aren't buying for any purpose other than to park cash; at least that's been my experience.

    Buying for appreciation and cash-flow are two different strategies.  One provides you with consistent income along with the benefits of appreciation over time (although secondary to the primary reason).  I would argue that rental properties typically do not appreciate as much nominally than homes purchased for pure appreciation or flipping.  The reason I say this is that cash-flow properties are typically cheaper on the broad spectrum of prices and in different neighborhoods.  That doesn't go to say that this is 100% true because it's not.

    In my opinion, it's really just up to your strategy and needs.  As with all investments, mind you i'm not a financial advisor, diversity tends to be safer than the alternative.  Not knowing exactly where the market is going, although models are predicting another crazy year here in Seattle, is enough for some people to just take a break and see what happens.

    Lastly, as you noted, knowing the economics is a key factor here and in our market, it's simple Demand outweighing Supply by ridiculous amounts.

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  • Aaron NelsonBusiness Member
    Real Estate Agent · Seattle, WA · Member since 2016 · 307 posts · 191 votes
    8y

    Hi @Jack B., 

    I agree with much of what you stated. As a fellow buy and hold investor, my answer is that I invest for both cashflow and appreciation. You can still find a nice blend here in the Greater Seattle area/Western Washington market. I have a story similar to yours.

    My wife and I bought a live-in flip in Newcastle/South Bellevue. Bright yellow tile, color crayon on the walls, and old brown tile in the entry that was a pain in the tail to remove. We went about updating, painting, etc. and a few years later, we sold the property, cashed in on the $200K + tax free equity, purchased a more affordable primary residence and bought a rental property. 

    I love Western Washington and there are still deals to be had. As one of the BP podcast guest said, this market it's about making deals, not just finding them. 

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  • Peter Nelson
    Residential Real Estate Broker · Seattle, WA · Member since 2013 · 27 posts · 25 votes
    8y

    I think Jake hit the nail on the head -- a combination works best.  When you are first starting out cash flow will probably take on greater significance.  But as time passes and you get more stable ground under your feet financially then your attention will turn to market appreciation in order to build your portfolio and wealth.  As you get closer to retirement then cash flow will return to being of great interest.

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    8y
    Jack B. I started in 2009 with a couple rentals. In 2012 when normal mls stuff would not cashflow I went out of state for cashflow. Never looked back.
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  • John Barrett
    Rental Property Investor · Everett, WA · Member since 2015 · 458 posts · 386 votes
    8y
    Hi Jack, I have been focusing on investing for cash flow. As others have pointed out already, it’s your goals that will determine your strategy. In support of this goal as our properties have appreciated we are using various strategies (cash out Refi’s / 1031 exchanges) to increase the number of cash flowing assets. Appreciate is great but I don’t want to have to count on it for a return. I prefer the steady stream of monthly income as I have more control over it. Again may different ways to reach your goal. Just need to make sure whatever strategy you are using supports it.
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  • Joseph Delia
    Investor · Kirkland, WA · Member since 2016 · 31 posts · 26 votes
    8y

    That depends.  Is investing with a mindset to "just break even with my costs" considered investing for cash flow or investing for appreciation?  Although I fully expect appreciation, if it doesn't appreciate a cent I'm still comfortable knowing the mortgage got paid off by somebody else over 30 years.  This is a great luxury mindset to have by the way in a market as high cost as Seattle is presently.

    I sort of look at it like this (and I've read all of the "invest for cash flow books" guidance as welll), I have extra investment cash AFTER accounting for all of my retirement investments, etc.  I wish to diversify beyond the stock/bond markets.  So what do I do with my excess cash?  I prefer to put it in real estate and more specifically, in a market like Puget Sound where I have knowledge and experience.

    I've never really known how to classify RE investors like me, but as I talk to peers, I'm finding it more common than I originally imagined.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    You will find that you can have one or the other. Both is rare if you are talking above average appreciation simply due to the fact that high appreciation kills cash flow since rents rarely keep up. Todays appreciation numbers, in some areas, simply can not be maintained indefinitely.

    Faith investing is much higher risk especially with todays economic climate. It is a risk/reward situation. Potentially higher profits and higher losses speculating on appreciation. 

    The biggest mistake faith investors make is being blinded by the continued meteoric rise in value. They have faith it will continue forever and don't know when enough is enough.

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    8y

    I am past retired, any appreciation my investments get will be a consideration for my kids not me. I do the 'could I sell this if need be' gut check but not more. So pretty much it is all about the cash flow that being my income source, and without that I'm a greeter at Walmart!

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  • Jared Skov
    Rental Property Investor · Lanai City, HI · Member since 2018 · 64 posts · 70 votes
    8y

    @Jack B. Ultimately, you should do what you feel is most comfortable. If you have a career that's less affected by the economy (health, dental, vet, etc.) and are cash flow positive thousands each month, then you can afford gambling on an appreciation asset. If you're buying for a long term hold, 30 years from now, you'll be laughing that you 'could've got a place for under $1M in Seattle. Always have a good exit plan or backup strategy, it will help you sleep at night. Asses how much risk you're willing to take and how your financial situation is now. It's never smart to 'red-line' where any minor blip in the economy will take you down. Leverage your money if you can, live in a multi-family for a year with only 5% down, then move out...

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  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y
    Originally posted by @Bjorn Ahlblad:

    I am past retired, any appreciation my investments get will be a consideration for my kids not me. I do the 'could I sell this if need be' gut check but not more. So pretty much it is all about the cash flow that being my income source, and without that I'm a greeter at Walmart!

    So does that mean you were able to get positive cash flow (even when highly leveraged) from your "greater Seattle" investments - from day one? (I noticed that those mentioning "investing for both cash flow and appreciation", were only getting cash flow - after they sold again!)...

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    8y

    Thanks for asking Brent. What I mean is that I don't think at all about selling or appreciation when looking at properties or running the numbers. I do load it up with financing and PM ing to validate the investment; but in reality I find it preferable to pay cash since I have it from selling California properties. I have only been living in the PNW off and on for the past two years and my wife and I moved here full time last year. We have had rental properties in the area for a few years and we simply took over one of them for our primary residence.

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  • Account Closed
    Rental Property Investor · Everett, WA · Member since 2013 · 389 posts · 222 votes
    8y

    Both! And having great success in Everett.

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  • Kerry Jackson
    Everett, WA · Member since 2017 · 3 posts · 0 votes
    8y

    hey grant I'm 21 yrs old and am fairly new to investing in terms of experience. I'm wondering if you would by chance know where I could get a good purchase and sale agreement! 

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  • Chris Evans
    Seattle, WA · Member since 2014 · 4 posts · 4 votes
    8y

    I took a different route than most.  I invested right in the heart of northeast Seattle a year and a half ago in a very desirable area where the schools are good.  The house does not cash flow yet.  I lose $400 per month at this point.  I still have the original renters.  The house is in very good shape and I haven’t received any maintenance calls yet. The house has gone up $165k in value in a year and a half.

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  • Adrian Chu
    Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
    8y
    Originally posted by @Chris Evans:

    I took a different route than most.  I invested right in the heart of northeast Seattle a year and a half ago in a very desirable area where the schools are good.  The house does not cash flow yet.  I lose $400 per month at this point.  I still have the original renters.  The house is in very good shape and I haven’t received any maintenance calls yet. The house has gone up $165k in value in a year and a half.

    Congrats. I love NE Seattle just for that reason.  Cash flow can be overrated.

    1Reply
  • Account Closed
    Rental Property Investor · Everett, WA · Member since 2013 · 389 posts · 222 votes
    8y
    Originally posted by @Adrian Chu:
    Originally posted by @Chris Evans:

    I took a different route than most.  I invested right in the heart of northeast Seattle a year and a half ago in a very desirable area where the schools are good.  The house does not cash flow yet.  I lose $400 per month at this point.  I still have the original renters.  The house is in very good shape and I haven’t received any maintenance calls yet. The house has gone up $165k in value in a year and a half.

    Congrats. I love NE Seattle just for that reason.  Cash flow can be overrated.

     “Cash flow can be overrated” I love it! So many people are obsessed with cashflow. They live in this thriving PNW market and invest in depressed markets across the country for a few hundred dollars a month in cashflow. I’m not going to hit my goals on a few hundred extra dollars a month in cashflow but I will with a mix of steady appreciation (8-15% or more) And moderate cashflow. I love the Seattle Tacoma and Everett market.

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  • Chris Evans
    Seattle, WA · Member since 2014 · 4 posts · 4 votes
    8y

    Everyone has different investment objectives, and this is certainly a different way to look at it.  Instead of multiple properties that cash flow at $200-$300 per month in low appreciation markets, look at focusing on less properties from higher appreciation markets like Seattle/Portland/Denver/Silicon Valley.  Of course diversification is important.  I just don't see any end to the growth in the near term.  The company that I work for isn't able to fill high tech positions fast enough.  We are having to tap into talent pool out of state.

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