BiggerPockets

Roc,
This is a very broad question since all markets are local and the appreciation or depreciation depends on the state and direction of the economy, population migration and other factors. You may find certain areas that considered "neglected" and even dangerous become trendy because of the prices are so low that it allowed young and trendy people to buy those properties for a few dollars (Happened in Detroit). Or it could be because the houses' architecture is unique (Such as turn of the century houses) that the area become trendy.

The flip side of course, could be that the opposite happen. A middle class neighbourhood that went down in value because the jobs disappeared and now turn into low income houses. (Atlanta have quite a few of those for instance) Those neighbourhoods, may continue to drop in prices at least for a while.

Check my first house I bought in Birmingham, AL
http://www.biggerpockets.com/galleries/show/5415
I paid $24,000 for it including rehab and it is rented for $650. You cannot find a house in a five miles radius today, that sells for less then $42,000. In many cases flippers take advantage of the low prices, "rehab the neighbourhood" if you will and drive the prices higher.

I plan to hold most of my properties for a long time. But to the question at hand when the real estate market get hot like 2004-2006 every house will see crazy appreciation regardless of area so buy the investments if your time horizon is 5+ years. If your hoping to flip in low income areas (sell under 5 years) it would likely be a bad investment. But hold for 10 years and you should be very happy

This may be the next wave of problems that the astute investor will be looking into. The would be new investors, who have some capital reserves, do not realize just how much reserves it will take to maintain their buy and hold properties for the long haul and will be in need of selling at another round of discounts in the future.

The question is how long can they hold out? If you do not have adequate reserves you MUST rely on cash flow to exist so to look at the appreciation at this point is just plain stupid.

In almost every market, you must buy rentals at a BIG discount if they are going to cash flow. If you buy a rental for 50% of the FMV and rent it at a positive cash flow, you've already doubled your money (with the instant equity). On the other hand, you could pay retail for a 1% deal in an overpriced market with negative cash flow and HOPE that appreciation will eventually allow you to double your money (with the equity appreciation).

Personally, I'll take instant equity and positive cash flow over HOPING FOR APPRECIATION and negative cash flow ANY DAY!

Mike

I think you missed my point Eddie. But you did reinforce it pretty well with your comments.

The new investors, those getting into things from the guru's messages OR any other reason who does not have adequate reserves (nor puts them away as he should using the 50% rule) will be the next "group" of people that will be falling into foreclosure because they are financed to the hilt and did not put away that which they needed because they are relying upon the appreciation similar to that which previously happened in the example given. The period between that 10 years and the 20-25 years is a long time to not be able to cover those expenses and to soley rely upon appreciation of equity to finance the needed repairs. While some increased equity may occur the upcomming interest rates increases will wipe most of that out and they will be in need of selling that which they purchased and the discounts of today will be available once again to the astute investor watching for this to begin happening.

While some of it will occur sooner than the time period listed there will be those who will not give up on their dream until their "nest egg" is exhausted. Therefore the next wave will come over time like a tide and not really be discernable like the recent tidal waves.

Let's just hope there isn't long-term deflation. If both rents and property values decline 10% per year for a decade anybody with a substantial mortgage will be hurting. Things that used to cash flow will no longer do so.

It's really hard to have a long term deflation when the dollar is sinking as rapidly as it does. Fortunately or not, we do not live in a bubble and those imports sooner or later will catch up to us. I'm with Mark. I see inflation coming beyond 2012...

Thanks everyone, the reason why I posted this thread was because I'm looking to buy a rental in a low income area. A wholesaler is trying to sell me the place @ a good price.

After reading the posts it got me thinking, if a rental cash flows and the place was bought a good discount, who cares about appreciation.

If your in the rental business, your main concern is cash flow. My 2 cents IMHO.