House Hacking: High Cash Flow or High Appreciation?

When considering house hacking, one of the key decisions is whether to prioritize high cash flow or high appreciation. 

Today, we will look at the trade-offs between these two approaches - by comparing them to dividend stocks and growth stocks. 

Disclaimer: These are just for comparison purposes. 

The stock market and the real estate market are.. two different markets. 

They differ completely and in most-part are mutually exclusive - meaning neither are dependent on each other or effect one another during ups and downs. They're completely separate

So we'll briefly summarize what dividend and growth stocks are and their differences

and then how they can be compared to high cash flow and high appreciation properties


In the stock market, dividend stocks are known for providing consistent income to shareholders.

 Investors seek out these stocks to generate regular, consistent cash flow.

The focus here is on immediate returns and income rather than significant price/value appreciation.

MOST of the time, dividend stocks appreciate in price at a lower rate than growth stocks over the long-term.

Not always, but most of the time.


Now -  Growth Stocks are known for their potential to increase in value at a higher pace over time than the overall market.

These stocks reinvest their profits into the company, prioritizing long-term growth of the company and stock price - rather than passing along some of those profits to shareholders in the form of a dividend.

In contrast to dividend stocks, growth stocks often appreciate much higher in price over the long term.

It's very hard to find a growth stock that pays a high dividend - and its very hard to find a dividend stock that grows in price like a growth stock.

So it's not uncommon to see people invest in a mixture of both to get the best of both worlds.


Now let's marry this in with house hacking

Of course, everyone wants to sell their home - or stock, for that matter - for more than what they bought it for. 

When deciding between high cash flow or high appreciation - it's super important to consider the trade-offs AND your investment goals. 


So High cash flow house hacks:

These properties offer immediate income - giving stability and the ability to cover expenses.

They tend to be more stable during down-turns in the real estate market - just as quality dividend stocks typically do during a bear market or recession. 

The difference here is on generating higher income today with lower price appreciation - 

versus a house hack with low-to-no cash flow - but may appreciate in value higher and quicker over the same time period when sold.

Example:

buying a 200k property where once you move out - generates $1,000/mo in cash flow 

and sells for $250,000 after 10 years

vs.

buying a 200k property where once you've turned into a hosue hack - generates $100/mo in cash flow

but sells for $350,000 after 10 years


So how do you find the right balance?

Well, here's some good news and some bad news:

Good news: From an outside perspective, one approach is not necessarily better than the other

- it does depend on what you are looking for - high cash flow today or higher return when sold

Bad news: It is extremely difficult to find a property that has both high cash flow and high appreciation

- if at all.

You're either looking at one or the other


So before we wrap this up - Here's how you can still get the best of both worlds with your house hacks:

The most ideal strategy of them all is to diversify your portfolio with a mix of high cash flow and high appreciation properties.


In order, in the beginning - the first 2 or 3 house hacks - you can prioritize high cash flow to build a recurring income stream 

or however long it takes to get that solid stream of income that you're looking for and feel comfortable with

once you've gotten to your comfort zone in cash flow - you can shift your focus towards acquiring properties with high appreciation potential.

Now you've got a mix of solid income now - and a higher overall return once you exit (or sell) these properties down the road, rather than a portfolio of all high cash flow or all higher appreciation.

Just as I mentioned earlier how stock investors create a mix.


Again, it ultimately comes down to what you're looking for and what your financial situation looks like - along with your risk tolerance.









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