What's The Best Balance Of Cash Flow Vs Appreciation?
Running the numbers on houses in my area reveals that the lower the price of the house, the better the cash flow. Unfortunately, the better the cash flow, the poorer the appreciation gains. Still, it seems like the overall return is greatest with the lowest priced houses, even if the neighborhood has slightly negative appreciation. The only drawback I can see to the lowest priced neighborhoods is the fact that the houses often need a fair amount of updating and this could be a big negative if you had to pay contractors to do all the work. Any feedback on the best price range for long term rental properties(lowest ,low, mid-range, high)?
By the way, I personally don't mind working in the rougher parts of town. However, I could see how many people would find it difficult to invest in these areas because of possible safety concerns, etc.
Thanks,
Kent
Personally I consider Cashflow the foundation of my REI strategy. Cashflow allows me to pay my own bills and keep my debt non-existant. It also keeps me from having to borrow when necessary repairs arrive.
I plan on slowly moving from cashflow to equity as it tends to have the most potential for money the fastest.
I agree w/Savvy. You can do an infinite number of deals that cash flow, but only so many appreciation deals.
As you get more equity and cash, and want to spend less time managing, you will find that you go for more appreciation.
Good Luck!
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I agree, Cash is King! Your property appreciation will not pay bills, or for food, or other indulgences for a few years.
I totally agree. Cash is king. I have a loan on my own home that has the potential for negative, but the payments are so low it allows me to buy other investments. I also recently bought a commercial building with nothing down, assumed a debt and the seller carried the balance @5% int amort. for 25 years (total payments: $403 / month). I hopefully am getting appreciation, but in the mean time if I couldn't pay the payments it wouldn't make any difference how much the property appreciates.
CASH CASH CASH
Even if it were to loose half of it's value, if it continued to cash flow you'd be fine for a long time.
If every deal you do takes $400 per month out of your pocket, how many deals can you do? ...And what if that $400 turns into $800???
Hey,
Can I just state the obvious here? Past Appreciation is interesting fact, yet a useless fact. Future Appreciation is a myth.
No one can tell you what a house will be worth tomorrow or a year from now.
For Rentals, basing ANY of your numbers on Appreciation is a short road to ruin. You can not buy bread or new 2x4's with potential Appreciation.
I have a question. When you are talking about cashflow do you factor in how much of your own money you had to put into the front end of a deal? What if you were able to get 100% financing for the property, would you go into the deal for minimal monthly cashflow.
Thanks
Strictly speaking cash flow is the amount of cash that you have at the end of the monyh after paying all your expenses plus your debt service an dreserve for repairs.
Now your cash on cash return would factor in how much cash you put in the deal. If you invested $10,000 and the annual cash flow was $2000, this is a 20% cash on cash return.
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