TL;DR: Some investors focus on cash flow, others on appreciation. The best strategy depends on your goals, market, and risk tolerance. Here’s how to think about the tradeoff.
What is cash flow?
Cash flow is the money left over each month after you pay all expenses—mortgage, taxes, insurance, maintenance, and vacancy. Positive cash flow means your property pays you to own it.
What is appreciation?
Appreciation is the increase in your property’s value over time. Some markets offer slow, steady growth; others can see big jumps (or drops) depending on demand, jobs, and local trends.
Pros and cons
- Cash flow: Provides steady income, cushions against market downturns, but may be lower in high-growth areas.
- Appreciation: Can build wealth quickly, but is less predictable and can turn negative in a downturn.
How to balance them
- In expensive markets, you may have to accept lower cash flow for higher appreciation potential.
- In stable or declining markets, prioritize cash flow to avoid negative returns.
- Use Housalyzer’s Investment Property Calculator to model different scenarios.
Real-world example
An investor in Austin bought a home with break-even cash flow, but saw 40% appreciation in five years. Another in the Midwest bought for cash flow, earning steady returns even as prices stayed flat.
The takeaway
There’s no one-size-fits-all answer. Know your goals, run the numbers, and be honest about your risk tolerance.
Disclaimer: This is not financial advice. Always consult a qualified professional before making investment decisions.