I’d like to highlight two particular examples this time, mostly due to the fascinating relationship they share with one another. The cash flow as well as appreciation. That’s not to say that tax benefits or amortization aren’t as important.

Appreciation and Cashflow’s Tangled Love Story

As an investor and one who has worked with a number of investors, I am given the chance to analyze the numbers of a variety of various properties to determine what they would be suitable for the needs of the investor. After a short time of doing this, I discovered something that’s very evident to experienced investors, but could be an unexpected surprise to new investors. Cashflow and appreciation are in an opposite relationship. In general, if an asset has a large cashflow, it will be expected to appreciate less appreciation, and vice versa. However, this isn’t always the case. There are always exceptions however why do they happen?

Desirability

My personal opinion is it really boils down to how attractive it is. A stunning property in a desirable area will always fetch a premium price, however, the rents for the same property don’t increase proportionally. In contrast to an uninhabitable property in a neighborhood you’re afraid to wander around at night. The cost is reduced to the minimum, while you still have the option of getting an income.

These two are extreme ends of the spectrum. I’m hoping you understand the message. When there is a lack of interest, the price falls to reflect that, and with a lower price, the potential for high cash flow is available.

My Grandparent’s Mobile Home Park

My grandparents had a mobile home park, which my grandpa adored calling “his” ATM machine. This is an excellent illustration of high cash flow but only a tiny amount of appreciation. Each month, it brought thousands of dollars, but I noticed something else that would occur at least every 6 months, or more or less. Grandpa would be approached by someone who wanted to purchase the park. They would give what I would consider to be an extremely reasonable price, however, Grandpa would always decline the offer.

Did he think that his item was worth more than what the market was saying, like many sellers? Most likely, but when I inquired about why he didn’t decide to sell it was due to the cash flow he’d lose. The price of purchase they offered is usually paid within five years after cash flow out of the park. It was so naive to him that after five years, he would be able to access that money as well as cash flow to fund the future.

Did the buyer have a bargain with him? I doubt it. If you take a look at the assets, a few acres of land, trailers that cost between $10 and $15k and utility hook-ups, they didn’t amount to anything at all. That’s the issue that he earned a great flow of cash however the assets weren’t worth any money.

The Opposite End of the Spectrum

In contrast, the property with a high cash flow is something that’s more of the luxury home in a sought-after city with a rapid growth of population. Due to these factors, you’ll be paying a higher price to buy it, and this is likely to negatively impact the cash flow you earn from it. But, these aspects will help you during the time when you own it, and when you are ready to realize the equity that you’ve earned through selling it or refinancing it will be greater. In the event that any disagreements do arise, here is a broad list. It’s not comprehensive and not all of these may apply to every property.

How Should You Invest?

Simply put, do whatever you’d like! It’s not what you’ve been searching for, I’m sure. So let’s discuss which one is the most effective for you.

What is Your Preferred Outcome?

Do you want to earn as much “passive” income each month as possible. Try a Cashflow Investment. Are you in possession of a huge portion of money that you want to invest and leverage with the goal of not making any profit for a long period? It could be a good alternative to give the most profit. Once you have decided what you’d like your money to be used for, you must consider how to get that bargain.

Know Your Market

Each local store will typically provide a variety of choices that you could reduce to find the best fit for you. However, that might not be the case all the time. As an example, I work and live in Fairbanks, Alaska, which is a small town with a few towns that surround it. We generally see excellent rental rates in comparison to the purchasing price which provides us with an excellent cash flow, but low increase. The last couple of years have been an exception with a 20% appreciation per year, however rent rates haven’t been enough to keep up with the trend. However, I expect the appreciation to return to more normal levels of around 3.5 percent annually over the next three to five years, and rent rates to catch up. There is still an attractive cashflow opportunity however I would not recommend putting money into it at this time to make a huge appreciation strategy. The market may not offer the yield you’re looking for.

I would suggest starting locally since you know the area most well and have connections with people in the area who can assist you. If you’re unable to find deals that are suitable for your lifestyle, it might be better to consider traveling abroad for the bargain. While not getting caught up into the details of making money from home, it is generally recommended to be familiar with the local area and set up a team to assist you.

My Opinion

I believe that for those who are looking to make their first investment, it is best to consider a middle-of-the road option. A home in an A-to- B neighborhood. This means a neighborhood in which you’re not worried about being taken advantage of. Tenants are typically blue collar or in low-level managerial jobs. This will give you a good cash flow so that you don’t need to pull money from your pockets every month. When it comes time to have to sell, it will be in a desirable area. Most likely, it will be in the median price range, which is where the majority of buyers are therefore, even where selling can be more difficult to achieve, you’ll have choices. Avoid luxury properties as the cash flow of your tenant could not be sufficient to pay all costs or, when they lose their CEO position, they can’t simply give it to a town with the chance to earn more. Beware of areas of war where you could be shot on the street.

It may seem obvious to others However, with all the options you can invest your money in the real estate market, and you have to narrow your options to make sure you don’t get lost!

Where To Go From Here?

Once you’ve determined which type of property would most suit your needs, it’s time to begin searching. Your first contact should be with an agent from your local area or a lender, unless you plan to purchase cash. You could even begin talking with a Real Estate Agent before you are sure of what you’re looking for so that they can guide you.