In the real estate world, the words “cash flow” and “appreciation” get thrown around a lot. What are they and how do they affect our real estate purchases? I will explain in detail below. 

Cash flow is the difference between the rent you collect on a property and your monthly expenses (things like your mortgage, taxes, and utility bills). Many investors get into real estate strictly for cash flow, and try to make money that way. With that said, this is not the only way to “make money” in real estate. I put that in air quotes because even though a house may not cashflow, it often gains value over time, a process known as appreciation. This value can be accessed upon selling the home, refinancing, or obtaining a home equity line of credit. 

Another important question to ask: What is the relationship between cash flow and appreciation? I see this as a spectrum. Where you get more appreciation, you tend to see less cash flow, here’s why. Appreciation, historically, tends to happen more in up and coming areas, metropolitan hubs, and areas with rapid population and job growth. These areas (often big cities) by nature tend to be more expensive. Therefore, even though you have a property that is likely to appreciate over time, you’re paying much more for it. This translates into a higher monthly mortgage payment, which means decreased or non-existent cashflow. Also keep in mind, appreciation is not guaranteed. It is influenced by the current market and economy. 

Some will argue that you should pursue non-cash flowing properties anyway, particularly if they are expected to appreciate heavily. I have one problem with this. What happens when you buy the property, something goes wrong (and something always does) and you now have to come up with the money to fix or replace (insert item of choice) immediately? If a property is not cash flowing, you will need to take the hit and reach into your pocket to pay the price. You see, cash flow is more of an airbag than anything else, in my opinion. It provides a protective financial barrier when something does go awry with your rental property and you can now pay for those expenses with your incoming cash flow. This is the safer bet for newbies (in my opinion). 

All of that said, there are many schools of thought on this matter, and it will always depend on your particular situation. Make sure you are working with a pro when it comes to your real estate needs to make sure you’re getting the latest information and highest quality care. 

Thanks for reading!

*Note:

Please read this disclaimer (“disclaimer”) carefully before using ajtpropertiesboston.com website (“ajtpropertiesboston.com”,
“service”) operated by [AJT Properties (“us”, ‘we”, “our”).
The content displayed on the website is the intellectual property of the [AJT Properties]. You may not
reuse, republish, or reprint such content without our written consent.
All information posted is merely for educational and informational purposes. It is not intended
as a substitute for professional advice. Should you decide to act upon any information on this
website, you do so at your own risk.
While the information on this website has been verified to the best of our abilities, we cannot
guarantee that there are no mistakes or errors.
We reserve the right to change this policy at any given time, of which you will be promptly
updated. If you want to make sure that you are up to date with the latest changes, we advise
you to frequently visit this page.The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other
advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by HIl or any third party service provider to buy or
sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the
securities laws of such jurisdiction.
All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site
constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters
discussed or the law relating thereto. HII is not a fiduciary by virtue of any person’s use of or access to the Site or Content. You alone assume the sole
responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based
on such information or other Content. In exchange for using the Site, you agree not to hold Hi, its affiliates or any third party service provider liable for any
possible claim for damages arising from any decision you make based on information or other Content made available to you through the Site.