I work with investors who specifically request the appreciation approach rather than the positive cash flow as they use the property for 1) diversity for their portfolio 2)reduction in annual taxes they pay (due to depreciation of the property) and then when they sell they only owe the long term capital gains. I prepare a 5 page investment analysis for each property my investors are interested in; if this is something you would be interested in, please give me a call at 919-225-1393. Christine

You should also investigate the tax impacts to you with investments generating positive cash flow vs. those generating appreciation instead (which you can defer via tax exchanges). Check with your tax preparer.

I like the responses from Jim and Fred. I am in Chapel Hill, own investment properties in Chapel Hill, Carrboro and Durham and have not found it easy to get positive cash flow these days. I look to break even but the truth is, I don't when you consider upgrading, repairs and maintenance. Houses are like cars--they always need maintenance and are money pits. It also depends on what you expect to contribute for the rent you receive. Are you improving the place or maintaining the status quo?

3 of my renters in Chapel Hill and Carrboro are grad students who pay regularly. A fourth is Section 8, will probably stay for a long time. If that is the case, I won't be able to raise the rent, but the rent is at the top for the complex. I have 3 places in Durham: grad students in one, Section 8 in another, and working poor in the third. It has taken a while to get the Section 8 so I went for several months without rent.

The key is location and the market you target--know your target tenant and the location well.

In so many words, Jim said cash is king. You can buy for a better price if paying cash. There are not many good flip deals now, so if you buy for short term, I'm not sure how you make much money. You don't get the full tax advantages, it costs you to buy and sell, and if you've improved the place you won't see your return.

Short sales are a good option. I am about to close on a short sale that I have negotiated. If you can buy a short sale, you can probably either flip it as is, renovate and sell, or rent it and do well.

I am very envious of those who purchased investment properties in their 20s or early 30s, so by the time they are in their 40s or 50s, they have a stream of passive income. Over 30 years the mortgage is paid off by the tenants and the rents are way up. Generally the value has also increased.

CCP there is nothing that eliminates both strategies. Why not purchase a property that has positive cashflow that will appreciate in value? There are many out there that would come under that heading. As long as you have possitive cash flow you can sell when yoou choose to and you can wait out the cycles while getting your loans paid by the tenents.

By the way if you do not have positive cash flow you are limiting yourself on how many properties you can own and you are at risk of losing them if something happens to your current income.

I think the best reason for investment properties to be used as a long term investment instument is that you can actually have someone else pay for your asset. So you buy a $100k home for $25k down, and the tenants pay you rent that covers your actual operating costs. You have zero expense out of your own pocket monthly. Your cash investment is $25,000. Is this right? Now if we can sustain 3% appreciation per year, that $100k home is worth $200k in 24 years. Lets say you have rents that cover the mortgage, insurance, etc, evn the cost of renevation comes out of a fund that is funded by rents. In 24 years you cash out and use this money for retirement. The house is almost paid for, and if you do it right.... it is paid for from rents paid. You profit $175k over 24 years with no more cost than your $25k. Follow me?

If you put $25k in the bank at 3% interest.... it too doubles in 2 years to $50k. What is better? That is my answer.

Besides, if you plan the properties to be long term investments, there is no stress about the flip theory in the next three years.

I hope this helps.

The old maxim, "Buy Low and Sell High" is very difficult in this present economy.

All of the old rules seem to have gone out the window.

Many areas in America are seeing declines in house values of 25%, 50%, and more.

And the bottom is nowhere in sight.


Many areas currently have a glut of rentals (do to the surplus of unsold properties),
and that excess supply is putting downward pressure on rent rates,
in both the residential and commercial real estate market.
You may not see the positive cash flow that you hope for.

*** One advantage that you do have: houses can be picked up for incredibly low prices,
especially if you have cash.

Shop very very carefully. I am not sure how the market is in the Triad where you are,
but my sister in Charlotte can tell you that the collapse of Wachovia and BOA has
devastated the Charlotte real estate market.

Having said all that,
remember that Fortunes were made by savvy investors during the Great Depression.
There are opportunities out there, if you know where to find them.

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Best wishes to you,
Fred
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