Hi Folks,
Been off the boards a while. I wanted to get some feedback about cash flow vs. appreciation. Which do you invest for, and why?
Is appreciation necessary when we’re getting our profit up front when we buy?
Having a steady stream of usable cash seems more desireable a goal.
Any comments?
CC
Cash is King.
Appreciation is the cake.
CC,
As we’ve discussed, I’m with Dmiller…cashflow is King.
Remember appreaciation can go South in a hurry in a down market. I’m thinking wee’re gonna see some of those real soon now.
Keith
Investing for appreciation is taking a gamble that prices will continue to rise.
Cash FLOW is what it is all about. If the property increases in value. even better.
Invest now for cash flow or appreciation? Not really a sensible question because you can predict cash flow with reasonable accuracy but you can’t accurately predict appreciation.
How about a different question: Which would you rather have over the next 2 years, cash flow or appreciation, assuming you can’t have both?
How about this scenario: Let’s say two years ago you could have bought two nice $100000 houses in the midwest and gotten a positive cash flow of $400 each, almost $20000. Appreciation is negligible. At the end of two years your investment looks like this, $210000 (market value) + $20000 (cash in bank) = $230000.
Or you could have bought a $200000 house on a barrier island in North Carolina. Let’s say the negative cash flow is $500 per month, $12000 over 2 years. Appreciation is 100% total over the 2 years. $400000 (market value) - $12000 (negative cash flow) = $388000.
Given a choice of appreciation or cash flow, I take appreciation. No contest. But it’s not for everybody.
Actually, I invest for THREE reasons: cashflow, appreciation, and debt paydown. Mainly for CF and debt paydown, though. Appreciation is an added bonus.
appreciation won’t pay your bills.
I buy a property. The property appreciates. I sell the property.
Appreciation pays my bills.
There are many ways to make money in real estate investing. Historically, most of the wealth which has been accumulated by real estate investors is not from cash flow or debt paydown, it is from appreciation. Cash flow is how you pay the bills while a piece of real estate appreciates.
I’m not knocking cash flow. It is a wonderful thing. It can pay the bills, in some cases. But WEALTH in real estate comes from appreciation. Appreciation is King.
But WEALTH in real estate comes from appreciation. Appreciation is King.
I like the old adage “money is made when you buy, not when you sell” myself.
appreciation doesn’t pay your monthly mortgage and insurance. that takes CASH.
I bought a vacant lot in April, 2005 for $35000. 204 Blue Heron Drive, Newport, NC 28570. You can look it up. Yesterday the sale of that lot closed at $84000. I deposited a check for $50233.44. Profit is about $43000. That profit is pure appreciation on an interest only loan. Today I wrote a check to pay a bill. I paid that bill with cash which came from appreciation.
Connect the dots. Your argument is petty semantics.
I buy a property. The property appreciates. I sell the property.Appreciation pays my bills.
But then you don’t have the property anymore…but you still have bills. You ever hear of killing the goose that lays the golden egg? Cashflow is king.
Steve,
The whole world is “semantics”.
To buy property to hold for appreciation is not Real Estate Investment , it is Real Estate Speculation - pure and simple. You can call it REI, but it is not. Semantics – maybe…fact – absolutely.
Until you find a willing and able buyer and actually sit at the closing table, you have nothing – just a deed that says you own it, someone’s opinion of its worth/value, and a specualtive number that represents the difference between what you owe and that opinion, e.g., the ‘equity’ .
Now, take that opinion down to the restaurant in town, show them your deed, and see what sort of meal they will serve you based on the two…“you go hungry – bow, bow, bow…” (and if you remeber that line, you’re REALLY old!).
Now, on the first of each month, I get cash that I can take to the restaurant and get a real meal…AND I’ve got some of that there opinionated equity stuff, too!
No right, no wrong, just different.
Keith
You guys are too funny.
Being new to this all, I can say that I only have one option at this point - cash flow.
I’m using cash flow analysis forms and they help me, as a new investor, to know EXACTLY where I stand. It lists all the expenses i forget and at the bottom tells me yay or nay.
I can’t afford to speculate about appreciation being as green as I am. but that deal that you described about the land and cashing out on it sounds pretty sweet.
Keith, normally you are so logical and now you throw this at me. 
Real estate equity is not legal tender so, no, I can’t buy a hamburger today with my equity. Of course I couldn’t buy a meal with a 40 pound bar of gold bullion either. By your argument, the only thing with value is currency, paper with ink on it. Think about it.
Heard a good quote from an old-timer about just this topic. It may not be exact , but it went a little something like this:
“Banking on appreciation is not in fact real estate investing…it is merely real estate speculation. There’s a big difference”
Of course I couldn’t buy a meal with a 40 pound bar of gold bullion either.
I beg to differ. You bring me a 40 lb. bar of gold, and I’ll whip you up a meal fit for a King! ;D
<<By your argument, the only thing with value is currency, paper with ink on it. Think about it. >>
I’m not saying that at all…I’m saying that I get both. In this market, however, quick appreciation is not a “this month” thing…you’ve got to invest for some time. Between buying low, sweat equity, and appreciation, all of my properties have at least 25% equity AND all have a PCF – the average PCF is $293. So with cash coming in, I can afford to wait the appreciation out some.
I think that some folks are in for the “rude awakening” this year as appreciations in some historical “fast burn” areas (SoCal, Phoenix, etc.) may see some negative numbers this year…It woould kinda suck to have a negative cashflow AND negative appreciation for a couple of years.
Keith
PS - that green paper stuff with the ink is kinda convenient, though! LOL
I agree with him! :-\
Actually you all are pretty funny.
Speculation is a form of investing and you have to weigh out your risk/reward factors. People invest in the stock market, but that is merely speculation that the stock will rise, correct? Is this semantics? Appreciation is not investing, it is speculation? I thought this was one of the ways we see returns on our investments.
I am with the newbie, I do not have the risk tolerance or capital needed to invest for appreciation at this point so to me cash flow is critical. But I do understand the incredible amounts to be potentially lost or gained through appreciation.
I would take $50k in appreciation in a year over $100 monthly cash flow over the course of 2 years in a high maintenance rental anyday. So as it stands like anything else, you look at your situation idividually. Do you have the tolerance and capital and knowledge to anticipate appreciation? Or, like me, do you need the (false) security of cash flow. Because after all, in each transaction there inherintly does lie some risk…
Have a good day gentlemen (and ladies)!!
Anyone would take 50K in appreciation in one year over a 100/month cash flow, if everyone knew it would actually appreciate at all, let alone 50K.
If it was that easy, we would all buy 20 properties and make a million this year.