Quote from @Dan H.:
Quote from @Andrew Lax:
I suspect if we polled only users with over 8 digits of RE or over 8 digits of net worth the question of what they would prioritize cash flow or appreciation, the appreciation would win in a landslide. Something for you to ponder especially if you believe my prediction on the results of such a poll.
I suspect you would be mistaken !! My partners and lenders would laugh me out of the room if I told them the property doesnt cash flow and just look at appreciation ... we only look for cash flowing assets and "hope" they appreciate along the way. I am primarily a commercial RE investor but also had a 50+ unit SFR portfolio..
I have participated in my fair share of residential syndications. Virtually all pitch a means of forced appreciation. I cannot remember a single one that obtained funding without a forced appreciation opportunity.
The 2nd to last syndication I joined was purchased with initial negative cash flow and achieved the capital raise exceptionally quick. They had successfully implemented the same sophisticated value add around a dozen times, each time achieving returns that resulted in maximum GP profit share.
Are you indicating you had a syndication that you sponsored that successfully found LPs to invest in that was based on cash flow without an appreciation play (without a Value add)? Can you provide me your investor presentation? Even if it was not cash flow negative, I suspect the investors came in for the value add (for the appreciation play). As indicated I have not seen a successful fund raise without an appreciation play. I know I would not choose to participate in a syndication if there was such a syndication without an appreciation play (which I have never seen) because the return would not meet my buy criteria. Purchasing with negative cash flow can result in increased value add potential.
I hold by my statement, if we only pulled those with 8 digit plus net worth (or successful syndication sponsors), buying for appreciation would whoop the buy for cash flow. I know my vote. I also know my worst appreciation play out of all my purchases would whoop any primary cash flow play.
Why does (virtually?) every residential syndication have an appreciation play? It is because the appreciation provides the high return. Do the sponsors not know what they are doing?
Something to ponder.
Note I am not saying you cannot do well investing for cash flow. I recommend you start in a market you have intimate knowledge regardless if it is high cash flow/low appreciation or vice versa. Note beginners are not syndication sponsors. After you have some experience, you will be better prepared to branch to other RE markets.
good luck
I dont syndicate ... I have a small group of well healed partners that invest in real estate ...
Maybe I wasn't clear and I apologize, yes appreciation is always important and agree thats where we make the lions share of profits ... but my crystal ball cant see around the corner let alone 5 or 10 years years out... So all those IRR plays are purely speculative... it just looks good on paper.... difficult to raise money if you dont show a nice return.
The last 15 years everyone has been a brilliant RE investor... Lets see what higher interest rates, lower rents, and higher cap rates do to all that brilliance..
Lots of debt rolling in the next few years ... Just keep an eye on that ...
