Cash Flow vs Appreciation which number matters most ?

Question

I was listening to a recent BP podcast and they brought up the topic of Cash Flow and appreciation for buy and hold properties. I'm curious to know what factor is most important for some investors when they are looking to buy and hold ? I'm pretty sure the answers  will vary based on the different markets you invest in but I'm curious to hear what you all think.

Chris K. · Answer

Here is a discussion about that very subject from about a week ago.

https://www.biggerpockets.com/forums/48/topics/151976-bp-poll-are-you-in-it-for-the-cash-flow-appreciation-or-both

I'm definitely in it for cashflow and see appreciation as a bonus.

Cierra Seay · Answer

@Robert Leonard thank you for commenting I asked because in the podcast  the person speaking said they would buy a potentially negative cash flowing property if it appreciates in value fast. I understand that you can't predict appreciation just interested in seeing if anyone factors this into their purchasing decisions.

Robert Leonard · Answer

@Cierra Seay the only one of the two you mention with a real number to evaluate when considering a purchase is cash flow.  You can clearly calculate it when you know the expenses.  If you don't know the expenses, use the 50% rule to "ball park" the expenses and get an idea if you are likely to generate positive cash flow.

Appreciation is only a projection/estimate and any number you put on it is a pure guess.  Unless you have a crystal ball, then it's a different case! ;-)

Jarod Bona · Answer

In my opinion, if you are putting together a portfolio, there is an advantage to having some of each. You certainly want some cash flow, even for properties that may fit the appreciation paradigm better, but there is a benefit in having properties that develop equity more quickly. You can access the equity by selling or borrowing against it. The equity may also make lenders more comfortable lending to you in the future for that specific reason.

If you are just starting out--absent other countervailing factors unique to one's situation--I would opt for cash flow. Most early investors underestimate costs, so knowing that your property has healthy cash flow will protect you from what you didn't consider. Hopefully you can also build up some cash for your next property.

Cash Flow vs Appreciation which number matters most ?

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