The difference between two real estate investment strategies.

What it boils down to is how long you’re looking to wait and what is your primary motive for investing in real estate. If you’re looking to have more control over the investments you make I suggest to go for cash flow. Cash flow investment strategy allows you to reduce the risk of market fluctuations and real estate price drops. You have a more or less predictable monthly income which stabilizes your cap rate and sort of gives you a guaranteed number before you go into a deal. That is because you know how tenants are paying for your property before you purchase it so that number is more or less fixed. Secondly if the tenant were to move you could still get tenants at the market rate which should be similar to what the previous tenant were paying. The expenses should also be pretty deterministic before you go into a deal. If the property doesn’t suffer from major problems like foundational issues or needing a new roof, etc. then you can be more assured that the expenses will not spike suddenly and this helps stabilize your cap rate.

With appreciation strategy you’re looking to increase your property value by waiting for the market to move. This I compare to gambling specially if you’re not looking to hold on to that property long term, anything more than 5–10 years. Appreciation is uncertain because you’re waiting for the forces of the economy to act and that goes into the realm of study of macro economy, which in my opinion is very subjective and a non-intuitive or even counter-intuitive field to understand. In addition to a long term strategy appreciation could also work if you get into a very good deal at the beginning when you purchase the property. This of course also applies to cash flow strategy, but it can yield more rewards in the appreciation case as typically the investment figures are larger.