There is an ongoing debate as to whether it’s better to invest in a property that is set to appreciate in value or one that will provide a strong cash flow (monthly rental surplus after all expenses). While both sides have their pro’s and con’s, I think it’s most important that you choose ONE strategy and focus on that when you are searching and ultimately buying your next investment property.
Having a strategy (whether cash flow or appreciation focused) is essential to buying the right investment property. Let’s look at two examples:
Example 1 – Student rental
– Can achieve excellent monthly cash flow as putting 5+ students in a home at $400-$500 each. Depending on the city you invest this could exceed regular expenses by $500-$1500 per month.
– Don’t need to invest in expensive finishings for the property.
– As long as your property is near a large college or university there will always be students looking to rent.
– Prepare yourself for headaches- damages, chasing rent cheques (poor students), big utility bills, etc.
– Student rental areas tend to lag in appreciation compared to similar area’s that have more commonly owner/occupied properties.
– Wear and tear on your investment will slow appreciation of property
Example 2- Single family townhouse
– Rent to long term tenants with regular income.
– Purchase in nice family neighborhood near schools, shopping etc will see increased value of homes year over year
– Comparatively less wear and tear on property than on student rentals.
– Little to no cash flow each month as buying in nice area means paying more for property. As well only renting to one person/family will generate less than 5 separate students in a student rental.
– Relying on success of real estate market as to whether your investment goes up or down in value.
Take some time to think about this, and decide which type of strategy appeals the most to you (cash flow or appreciation focused). This will give you some direction when looking to purchase your next property and help you determine whether you will meet the financial goals you wish to achieve… and always remember to discuss this with your trusted mortgage professional 😉