Appreciation vs Cash Flow
In this episode I talk about the age old debate of appreciation over time versus cash flow. I discuss the pros and cons of each and let you know on which side of the debate I fall on. I talk about keeping your investing inline with your goals and using the cash flow model to achieve this.
Appreciation is the increase of the property value over time. This is great in theory, however nobody can predict the market. The recovery in the real estate market has been slow and some markets have even seen a slight decline. We do not know if we are going to see significant growth in the residential real estate market anytime soon. I don’t like the strategy of relaying on appreciation to make money long term, while being negative or just barely even monthly. The problem is that you can’t control the market and how long do you want to keep a negative cash flow property for the hope of a long term gain.
I like positive cash flow every month. The more cash flow the better. I know some investors that won’t consider buying properties unless they can cash flow $500 per month or pay at least 50% down. This leaves them sufficient reserves for emergencies or unexpected repairs. I think using the positive cash flow from one property to purchase another cash flowing property is a great strategy and is one that I use myself.
Remember: You make money when you buy. Meaning you have to buy at the RIGHT price to make your plans work. Also, if you get a great price it gives you more flexibility with you exit strategies.