Posted by Ronald * Starr(in No CA) on July 25, 2003 at 23:24:07:
You say: “You should not base your buying decisions on appreciation. Make sure the deal can stand on it’s own. Appreciation is just the frosting on the cake.” I can understand why you might say that and believe it.
However, I suspect that is because you have not seen much appreciation where you are. Here in Coastal CA, appreciation has been the game for many years. Any positive cash flow is “the frosting on the cake here.”
I agree with you in cautioning people about the unpredictability of the appreciation. However, I think that the rental rate and the cash flow can also be unpredictable. I think about the people who owned apartment houses in Oklahoma state when the oil-patch debacle occurred in the late 1980s. Many people moved out of the state. The property owners were devastated because the rents dropped. Many properties were foreclosed upon.
So, from my perspsective, the rent rates are not guaranteed either. So, to choose cash flow as you main goal may lead you to trouble. Now, of course, when the cash flows of the properties when down in OK, the property values did also.
But, in my perspective, one should try to project all three financial benefits of investing in properties: C, A, and T. If the total of the three looks good, go for it. If not, don’t. Don’t rely on just one of the three financial beneifts is my advice.
Now, of course the projections for the future are just that projections. They are not reality and may not even come close to reality. But what else are you going to use to buy a property if not an expectation of what the future financial value will be>
Good Investing************Ron Starr******************