How much negative cash flow is acceptable? - Posted by Gaymond Lee

Re: Comment on appreciation rates - Posted by GL - ON

Posted by GL - ON on August 02, 2003 at 16:52:41:

I couldn’t have put it better myself. But California still seems to be a world of its own in that prices have already gone so high no one can afford them but show no sign of slowing down. Predictions are that population will continue to grow faster than new housing construction so this trend could continue.

This is very unusual, and I do not consider it healthy.In more normal markets the rule of “buy low and sell high” and “in the long run you won’t go wrong buying and holding, if you have positive cash flow” still hold.

Calif misconception - Posted by randyOH

Posted by randyOH on August 02, 2003 at 19:16:58:

Actually, appreciation rates in CA may not be as high as most people seem to think. Let me tell you about my house in Orange County. We bought it brand new in 1986 for $262,000. Over the years, we have easily made $100,000 in improvements. By 1989, it was worth $475,000. But by 1995, it was down to about $350,000. Today, we might be able to sell it for $600,000.

If you ignore the improvements, the average appreciation rate since 1986 has been 5%. If you add in the improvements, the rate is only 3%.

So does CA have high appreciation? For short periods of time, yes. But, in the long run, it seems to be about the same as the rest of the country.

If you would have bought our house in 1989, your appreciation rate would be 1.7%. If you would have bought it in 1995, your appreciation rate would be 9%.

So, can you really count on high appreciation to bail you out of your negative cash flow in CA? I think that is a very questionable proposition.