Cash Flow Versus Appreciation

James walks you through the difference investing in a primarily home price appreciating market (appreciation) compares to investing in a primarily rent appreciating market (cash flow).

Taught via allegory about “Cash Flow” Brian versus “Appreciation” James.

“Cash Flow” Brian lives and invests in a real estate market where buying a property with 20% down starts with $100 per month in cash flow. Plus, rents are going up at the same rate as inflation, 3% per year. Property values in “Cash Flow” Brian’s market are not keeping pace with inflation; they are increasing at 1% per year. Properties become better cash flow deals over time because rents are going up faster than property values.

In the city over, “Appreciation” James is investing in a real estate market where he’s break-even for cash flow with 20% down payments. Property values are rising at the same rate as inflation, 3% per year. However, rents are lagging behind inflation and only increasing at 1% per year. Properties become worse cash flowing deals as time passes. Prices are going up a lot faster than rents.

“Cash Flow” Brian is making an extra $100 per month per rental he buys, but “Appreciation” James is making about $7,000 more per year in appreciation. Would you rather have an extra $1,200 per year or $7,000 per year? Which is better? Why?

To see the charts and watch the video, check out:

https://realestatefinancialplanner.com/cash-flow-versus-appreciation/