For investment properties, Is it better to have high cashflow or solid resale value?

Asked by Matt Andrews - Real Estate Investor, Clearwater, FL Wed Dec 1, 2010

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Ruth and Perry Mistry’s answer
Ruth and Per…, Agent, Los Gatos, CA
Wed Dec 1, 2010
Hi Matt

On investment properties with a short time horizon one needs resale value.

However if you are looking at a mid term to long term investment
One is looking at Cash flow.

Good luck
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Suzanne MacD…, Agent, Succasunna, NJ
Wed Dec 1, 2010
These days cash flow is ALL that matters. So much so that cash flow is what determines resale value. It used to be people would take a property if it broke even, or even had a slight negative cash flow and then wait for rents to increase and property values to increase. Not any more, if the property doesn't cash flow, it is not going to sell, period.
1 vote
Gene Hacker, , Lake Isabella, CA
Wed Dec 1, 2010
It depends on your investment strategy. If you are looking at the long term then I would lean towards cash-flow being the priority.

Ideally you can find a deal that offers both.
1 vote
Tom, , Plymouth, WI
Wed Dec 1, 2010
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1 vote
Myra Gouger, Agent, Las Vegas, NV
Wed Dec 1, 2010
High cashflow always outweighs potential resale value as no one knows what that will be any more.
1 vote
Kevin Olson,…, Agent, Colorado Springs, CO
Wed Dec 1, 2010
Doesn't the cashflow of a property directly affect the value of the property? Poor cashflow = poor resale, good cashflow = good resale.

This may be particular to my areas, but if a property isn't going to cashflow it doesn't have a resale value because you're going to take a loss.
1 vote
Don Tepper, Agent, Burke, VA
Wed Dec 1, 2010
For cars, is it better to have one that seats 6 or that is a hybrid?

For wine, is it better to have a red or a white?

For computers, it it better to have a laptop or a desktop?

Maybe you get my point: It's not that one's better or worse than the other. The "better" solution depends on the individual buying the investment property/car/wine/computer.

Some people prefer high cash flow. Others a resale value that'll yield a profit. Different strategies.

Now, having said that, I'd personally suggest that, for many folks, high cash flow is preferable. Further, "solid resale value" is fraught with peril.

The problem with "solid resale value" is multifold. First, any investment property should have a positive cash flow. But if you put too much emphasis on equity or "solid resale value," you (or the investor) might be tempted to accept a moderate negative cash flow because of "all the equity." Bad move. Further "solid resale value" suggests you know or can predict what the resale value will be. In 2006, I knew of condos selling for $300,000. If I'd been able to sell you one at $200,000, would that have had a "solid resale value"? I guess so, until prices collapsed. You can buy those same condos today for $140,000.

Someone who buys on "solid resale value" isn't an investor. He or she is a speculator. It's OK to say that you're buying a property with $100,000 in equity. (Whether that equity remains there in 5 years is another question.) But it's not OK to say that the property has a "solid resale value."

So, given a choice, I'd suggest high cash flow. Still, it's not an "either/or" choice in many areas. Buy below market to get some built-in equity. But make sure there's decent cash flow. That way, if the value never goes up a penny--or even falls--you're doing fine. (Those $300,000 condos? At the top of the market they were renting for about $1,500. Today, they're still renting for about $1,500. Buy one today for $140,000 and you'll have nice cash flow. And who cares what happens with its resale value.)

Hope that helps.
1 vote
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