How to valuing the property for appreciation?

Question

Hi,

I want to get an idea from all those people who invest for appreciation on how do you guys calculate the worth of an investment.

What about current negative cashflows howmuch do you consider worth. Can you give some insight into this.

do you have any worksheet to look at the calculations

Till now I am only doing cash flow based investments so this will be helpful.

Thanks

C. Milos · Answer

Personally, we are willing to accept cashflow neutral in a good neighborhood of a high appreciation market, but not negative cashflow.

David Song · Answer

I invested initially for cash flow only, but over the last 12 years, what I realized is that the main financial gain is from appreciation, not from cash flow. Right now, my main focus is a good balance between cash flow and appreciation.

Cash flow is something you can see right now. Appreciation is something you can not accurately see immediately.

To estimate appreciation, I currently use the general inflation benchmark as a baseline, with a few extra point for the Bay Area.

As far as the exact appreciation percentage per year, that is not something we can control or accurately predict.

My gut feeling is that higher inflation will translate into higher appreciation. Therefore, in the next few years, the appreciation will be higher than normal.

Bay Area showed tremendous appreciation this year, as high as 30% compared to same period last year. Whether that trend will continue is up for debate. My bet is that it will keep going up as inflation pressure is there.

Vivek Sapre · Answer

Thanks all,

I was looking at

a property which has great appreciation but now the cashflow is negative( less than -200). Was debating what to do. Rents are going up so the cash flow will get better with time.

2nd property which makes cashflow neutral need some work/repairs. Which I feel will block my money into it now which restricts ability to buy anything else.

what you all suggest?

Vivek Sapre · Answer

@Nicholas

Thanks for your reply. All I wanted to known is when you buy a property for appreciation are people accepting negative cashflows? Or atleast have a break even cashflow?

We have model sheet for calculating cashflows is there anything for appreciation calculator? What are the things we consider? How is inflation accommodated in it?

Nicholas L. · Answer

@Vivek Sapre can you explain a little more by what you mean?  If you're forecasting appreciation you're estimating.  So if you have a property worth $100K with a mortgage of $80K and you're breaking even every month, your equity is $20K and your cash flow is $0.  If next year the property is 'worth' $105K, you have $25K in equity, but you're not doing anything with it - you would need to tap the value via a loan or sell the property.  But people certainly do this.

How to valuing the property for appreciation?

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