How Much of a Rental Deal Should Depend on Appreciation?

Investor · Lexington, SC · Member since 2018 · 779 posts · 501 votes

Here is a hypothetical I see newer investors wrestle with:

A rental costs $400,000 and produces roughly break-even cash flow after realistic expenses and reserves. The loan amortizes each month, and the market has appreciated over the last several years. The investor expects a long hold, but the projected return still depends heavily on future appreciation.

Assume the deal has:

• $2,800 monthly rent

• little or no initial cash flow after vacancy, repairs, management, taxes, and insurance

• a fixed-rate loan

• enough reserves to handle normal surprises

• a five-to-seven-year expected hold

The tension is that appreciation can create substantial wealth, but it is also the least controllable part of the underwriting. Principal paydown helps, yet it does not refill the operating account when expenses rise or a property sits vacant.

One stress test is simple: if the property's value stayed flat for five years, would the cash flow and principal reduction still justify the capital, risk, and management time? If the answer is no, appreciation may be doing too much work in the analysis.

For investors who have owned through different market cycles, how much of your expected return are you comfortable assigning to appreciation when you buy?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

1mo

the issue is an I have not seen it raised on this thread by very sharp investors.. Is this: No appreciation your STUCK even if your cash flowing a little bit that little bit just does not add up to much of anything unless you have ALOT of units or doors as the BP members like to call them.

and when burnt out landlord syndrome strikes which it does and it will.. exit is painful without appreciation your going to lose major money your going to lose transaction costs of 7 to 10% of gross and your going to have a HUGE TAX bill in the form of depreciation RECAPTURE again no one talk about that part of the equation. And especially if you did a cost seg on it.. so the only way out is to get on the 1031 Hamster wheel on reinvesting but if your already suffering from burnt out land lord syndrome that may not be an option.. Bottom LINE NO appreciation potential etc its not a deal I dont care if it cash flows..

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Joseph Zimmerman
Investor · Chicago · Member since 2026 · 17 posts · 12 votes
1mo
My P&L closes cash flow and principal paydown on each property every month. Both tie to a bank statement and an amortization schedule. My house and my condo get a value estimate from Zillow/Redfin, and it sits in a separate equity tab.

On your $400,000 example, principal paydown is the whole measurable return for five years, and I'd read it as an annual percentage on the cash put in rather than on the purchase price. I underwrite to zero appreciation. Break-even also means nothing refills the reserve, so I track months of cover on each property.
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Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
1mo
It depends on the market. In cities that have very low added inventory with strong employers located there you can expect prices to appreciate past inflation. North side Chicago, San Francisco, etc. Even with rates up the north side Chicago properties are selling 5-10% yoy and rents seeing double digit growth.

Pro development cities with easily added supply like Austin Texas for example or any random city it’s a gamble to expect sustained appreciation past inflation rate as added supply drops prices.

For depressed cities like Detroit MI, Gary IN I could see them having long term appreciation below inflation. Right now these places pumping as investors desperate for yield but doubt is sustainable.
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Michael Eskenasy
Investor · Pacific Northwest · Member since 2026 · 538 posts · 309 votes
1mo
A lot, potentially. I just don’t think appreciation should be allowed to rescue the underwriting.

If I buy a property specifically because I believe an area is going to outperform over the next 10 years, appreciation is obviously part of the thesis. Pretending otherwise doesn’t make the analysis more conservative; it just makes it incomplete.

But I’d separate “why I want to own this asset” from “what keeps this asset alive.”

Cash flow and reserves keep it alive. Principal reduction slowly increases equity. Appreciation is where you can get disproportionate upside, but it’s also the variable you have the least control over.

So your flat-for-five-years test is a good one. If values stay flat and I’m merely feeding a property every month waiting for the market to bail me out, I probably didn’t buy a rental. I bought a leveraged appreciation bet with a tenant attached.

That can work spectacularly.

It just needs to be called what it is.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
1mo
Many investors on the coasts have negative cashflow which they justify with offsetting appreciation.
Appreciation is the basis of their entire portfolio.
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G. Brian DavisPro Member
Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 867 votes
1mo
I try not to give appreciation much credit when I’m underwriting a deal. If the property doesn’t make sense based on the cash flow and principal paydown, I’m probably not buying it just because I think it will appreciate. Appreciation is great when it happens, but none of us controls it. I’d rather buy a property where I’m comfortable with the return even if the value goes nowhere for several years. If it appreciates on top of that, great. That’s upside, not something I need to make the deal work.

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Diana KhanPro Member
Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 512 posts · 184 votes
1mo
Quote from @Dan Handford:
Here is a hypothetical I see newer investors wrestle with:
A rental costs $400,000 and produces roughly break-even cash flow after realistic expenses and reserves. The loan amortizes each month, and the market has appreciated over the last several years. The investor expects a long hold, but the projected return still depends heavily on future appreciation.
Assume the deal has:
• $2,800 monthly rent
• little or no initial cash flow after vacancy, repairs, management, taxes, and insurance
• a fixed-rate loan
• enough reserves to handle normal surprises
• a five-to-seven-year expected hold
The tension is that appreciation can create substantial wealth, but it is also the least controllable part of the underwriting. Principal paydown helps, yet it does not refill the operating account when expenses rise or a property sits vacant.
One stress test is simple: if the property's value stayed flat for five years, would the cash flow and principal reduction still justify the capital, risk, and management time? If the answer is no, appreciation may be doing too much work in the analysis.
For investors who have owned through different market cycles, how much of your expected return are you comfortable assigning to appreciation when you buy?
@Dan Handford, this is something I think about a lot when looking at real estate.
For me, appreciation is great, but I do not want to feel like I need it just to make the deal feel okay.
If I owned the property for five years and the value barely moved, I would still want to feel comfortable with what I bought. Is the rent covering the property? Am I building equity? Do I have enough room for repairs, taxes, insurance, or a slower rental period?
I’ve learned that the deals that feel best are usually the ones where I am not checking the market every few months hoping the value went up.
If appreciation happens, great. But I would rather see that as extra upside than the reason I bought the property in the first place.
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
1mo
I do not view appreciation as uncontrolled (random). The virtually guaranteed appreciation is by value add. Note sophisticated value adds can be as easy as recognizing something that is likely to increase value.
Then there is market appreciation. Research can somewhat forecast appreciation. For years I underwrote with my market appreciation above projected cpi and in every long period I was right. A couple years ago I started projecting my market appreciating action as flat for 5 years. It appears I may have been a year early.
Those who think cash flow is guaranteed do not know their history well. Many areas had significant occupancy decline and rent fall at the GFC. More recently COVID had rent moratoriums where if you had a federally backed loan you could not evict the tenant for non payment. My market brought this to an extreme and banned all evictions except for health and safety. The tenant legally not paying can devastate your cash flow.
Because I virtually always purchase with a value add, the bulk of my return projection, and reality, is via appreciation. I expect to recover my investment in no more than 4 years. I suspect that is impossible without appreciation.
Now for the numbers. Can we agree that a 1%/month rent ratio is aggressive to have vacancy and sustained expenses meeting the 50% rule (vacancy plus sustained expenses not including P&i is 50% of rent)? The implication being if you obtain a 1% rule property, it likely does not meet the 50% rule (50% rule is too aggressive). For these numbers, let’s say you find the near unicorn that meets the 1% rule and the 50% rule. Would it cash flow at market investor level financing? Could it justify the effort and risks of residential property?
For simplicity of math we use $100k property, but the numbers are the similar at all costs. We use standard investor LTV of 80%. And current investor rates (APR 7.35% to 7.85) of 7.5% APR.
$1,000 (rent: 1% rule) - $500 (50% rule: vacancy and sustained expenses are 50% of rent) - $559 (P&i: 80% LTV, 7.5% apr) = -$9/month. We will call it break even.
Note this is on a rare property that meets both the 1% rule and the 50% rule. Equity pay down is about $60/month the first year. This equates to far below 1% of the property value (3.8% of the $20k investment).
Who wants to buy and own residential RE for $60/month that is trapped in the property?
Now the reality of my appreciation. My worst appreciating property has appreciated ~$1600/month. I have 3 properties that have appreciated over $10k/month. I suspect every one of my primary market investment properties has recovered my investment in no more than 4 years.
What about my cash flow? Initial cash flow has a poor correlation to long term cash flow. The best indicator of long term cash flow is appreciation without a dash extraction. For years I intentionally kept leverage high and cash flow low by extracting cash. All but one property has rent rent ratio over 1% and 2 properties over 4%. However prior to 2022, my cash flow was modest (leverage high). I have not refinanced since 2021 so my leverage is historically low and my correspondingly my cash flow is at all time high. Even with cash flow being at an all time high, my return over a reasonable period is still primarily from appreciation.
Historically my underwriting has virtually all the return via appreciation. Currently my underwriting, for the near term, depicts the appreciation only via value add.
Good luck
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- Dan H.Pro Member
  Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
  1mo
  Quote from @Dan H.:
  
  I do not view appreciation as uncontrolled (random). The virtually guaranteed appreciation is by value add. Note sophisticated value adds can be as easy as recognizing something that is likely to increase value.
  Then there is market appreciation. Research can somewhat forecast appreciation. For years I underwrote with my market appreciation above projected cpi and in every long period I was right. A couple years ago I started projecting my market appreciating action as flat for 5 years. It appears I may have been a year early.
  Those who think cash flow is guaranteed do not know their history well. Many areas had significant occupancy decline and rent fall at the GFC. More recently COVID had rent moratoriums where if you had a federally backed loan you could not evict the tenant for non payment. My market brought this to an extreme and banned all evictions except for health and safety. The tenant legally not paying can devastate your cash flow.
  Because I virtually always purchase with a value add, the bulk of my return projection, and reality, is via appreciation. I expect to recover my investment in no more than 4 years. I suspect that is impossible without appreciation.
  Now for the numbers. Can we agree that a 1%/month rent ratio is aggressive to have vacancy and sustained expenses meeting the 50% rule (vacancy plus sustained expenses not including P&i is 50% of rent)? The implication being if you obtain a 1% rule property, it likely does not meet the 50% rule (50% rule is too aggressive). For these numbers, let’s say you find the near unicorn that meets the 1% rule and the 50% rule. Would it cash flow at market investor level financing? Could it justify the effort and risks of residential property?
  For simplicity of math we use $100k property, but the numbers are the similar at all costs. We use standard investor LTV of 80%. And current investor rates (APR 7.35% to 7.85) of 7.5% APR.
  $1,000 (rent: 1% rule) - $500 (50% rule: vacancy and sustained expenses are 50% of rent) - $559 (P&i: 80% LTV, 7.5% apr) = -$9/month. We will call it break even.
  Note this is on a rare property that meets both the 1% rule and the 50% rule. Equity pay down is about $60/month the first year. This equates to far below 1% of the property value (3.8% of the $20k investment).
  Who wants to buy and own residential RE for $60/month that is trapped in the property?
  Now the reality of my appreciation. My worst appreciating property has appreciated ~$1600/month. I have 3 properties that have appreciated over $10k/month. I suspect every one of my primary market investment properties has recovered my investment in no more than 4 years.
  What about my cash flow? Initial cash flow has a poor correlation to long term cash flow. The best indicator of long term cash flow is appreciation without a dash extraction. For years I intentionally kept leverage high and cash flow low by extracting cash. All but one property has rent rent ratio over 1% and 2 properties over 4%. However prior to 2022, my cash flow was modest (leverage high). I have not refinanced since 2021 so my leverage is historically low and my correspondingly my cash flow is at all time high. Even with cash flow being at an all time high, my return over a reasonable period is still primarily from appreciation.
  Historically my underwriting has virtually all the return via appreciation. Currently my underwriting, for the near term, depicts the appreciation only via value add.
  Good luck
  
  I am about total return with a secondary goal of recovering my investment (not necessarily extracted but preferred if extracted) in no more than 4 years and in my reply that this is a reply to indicate that historically initial cash flow has a terrible relationship to actual cash flow over a long hold.
  Case Shiller used to post numbers (I think last update was around the start of COVID) on the best residential return large cities for this century. Unfortunately a year or so ago, all their links broke, Not sure why. The Case Shiller data showed the poor relation between initial cash flow and long term cash flow. The top return cities were all low initial cash flow cities. Top 3 were San Francisco, Los Angeles, and San Diego. Looking at the number the top cities had both good appreciation and good cash flow over the hold. This makes sense if you recognize the relationship between appreciation and rent growth and understand the higher rent growth city will always overtake the higher cash flow city with slower rent growth with time.
  So those who are making purchases on the initial cash flow are falling for the shiny object that historical data shows is not as shiny as it appears, they are missing opportunities.
  Now to show my actions match my words, One of my more recent purchases was the most negative cash flow non-commercial property I have heard of. $2.35m with fully occupied rent of $6k (my underwriting reflected near $5k negative/month). My initial plan was to brrrr, but when rates rose I decided that I would do the value add without the refi. This removed some of the urgency and I had another large rehab going at the same time. So it took us 3 years to stabilize. Outcome: property is worth over $1m more than purchase and rehab costs and I expect rents j(including vacancies) to average over $20k/month this year (PITI is just under $9.5k). I purchased leveraged. My return far exceeds my total investment and it now has modest cash flow (modest for its equity (my underwriting shows $1230/month cash flow)). Principle paydown is currently $2,675. Current value exceeds $3.5m. My return so far has exceeded 50%/year. My return exceeded my investment in 3 years (which is sooner than my 4 year goal). As we were completing the stabilization, I offered an open house on this site. See the rehab, look at the numbers, ask any questions. There was a fair amount of interest shown on the site but only one person actually showed up. I wish when I was starting I had taken advantage of such an opportunity but reality is I may also not have shown up.
  All those that would never purchase a property unless it had day 1 cash flow would have run away from this “deal”. They would not have achieved over 50%/year return.
  I am about total return. This has over $1m above cost appreciation and currently $1230/month cash flow and $2,675 equity pay down and over 50%year return on my investment (unless RE starts appreciating better, this will decline with time). It does a fine job meeting my high expectations from return.
  Do not fall for the shiny object that ends up tarnishing with time.
  Best wishes
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Igor Ganapolsky
Coral Springs, FL · Member since 2018 · 493 posts · 110 votes
1mo
Dan H. makes the critical distinction — value-add appreciation is virtually controlled compared to market appreciation. This is exactly why tax deed acquisitions can solve the appreciation dependency problem.

When you buy at a tax deed auction in Broward County (where I focus), you're typically acquiring at 50-70% of assessed value. That's instant equity at purchase — not speculation, not market-dependent. You've already captured the appreciation before you own it for a single day.

Example from our upcoming October 26 auction: A property assessed at $400K might sell for $240-280K. That's $120-160K in immediate equity. Even if the market stays flat for 5 years, you've still made your return because you bought below market, not at market.

The stress test question changes when you buy at a discount:
- If values stay flat for 5 years, you still profit because your basis is below market
- Cash flow works because your acquisition cost is lower
- Principal paydown is meaningful because you're not underwater

This is why I'm bullish on the tax deed partnership model for Broward County. Cash buyers bid at auction (I provide the deal analysis), and we both capture that instant equity. No waiting for market appreciation — it's baked into the purchase price.

For anyone interested in the October 26 Broward auction (16 properties, $2.5M+ total spreads), I'm putting together deal packets. Happy to share the analysis if you want to see the numbers.

@Dan Handford — your value-add point is exactly right. Tax deeds are just the most extreme form of forced appreciation at acquisition.
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- Dan H.Pro Member
  Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
  1mo
  Quote from @Igor Ganapolsky:
  
  Dan H. makes the critical distinction — value-add appreciation is virtually controlled compared to market appreciation. This is exactly why tax deed acquisitions can solve the appreciation dependency problem.
  
  When you buy at a tax deed auction in Broward County (where I focus), you're typically acquiring at 50-70% of assessed value. That's instant equity at purchase — not speculation, not market-dependent. You've already captured the appreciation before you own it for a single day.
  
  Example from our upcoming October 26 auction: A property assessed at $400K might sell for $240-280K. That's $120-160K in immediate equity. Even if the market stays flat for 5 years, you've still made your return because you bought below market, not at market.
  
  The stress test question changes when you buy at a discount:
  - If values stay flat for 5 years, you still profit because your basis is below market
  - Cash flow works because your acquisition cost is lower
  - Principal paydown is meaningful because you're not underwater
  
  This is why I'm bullish on the tax deed partnership model for Broward County. Cash buyers bid at auction (I provide the deal analysis), and we both capture that instant equity. No waiting for market appreciation — it's baked into the purchase price.
  
  For anyone interested in the October 26 Broward auction (16 properties, $2.5M+ total spreads), I'm putting together deal packets. Happy to share the analysis if you want to see the numbers.
  
  @Dan Handford — your value-add point is exactly right. Tax deeds are just the most extreme form of forced appreciation at acquisition.
  
  I have participated in local tax deed auctions a few times (maybe 4 times) but have not in at least 7 years (maybe 8;years). Our process is broken. It is online.
  
  You start with a huge list of properties. You narrow it down to a manageable number of properties. You then start researching the properties and you will see some strange things. Here is a partial list of items I have seen
  
  - a land locked house that appears to have been using an unauthorized access road across another property. The other property must have got tired of the illegal access as a huge pile of debris was spread across the road. A drone was handy on this one (and quite a few others).
  
  - a property that when I got to it I was shocked that the property could hold a house. It was steep. Pulled out the drone. The house was on the longest stilts I had ever seen a house on, but this is not the end of this story. The slope terminated at highway 163. I had driven 163 numerous times and never noticed the stilts or the house that is almost directly above the freeway.
  
  - An attached property that the right side was delinquent. The left side unit was one story taller than the right unit and had a door onto the right side unit roof with outdoor furniture, fire pit, etc. I suspect they were owned by the same person or minimum very good friends. I also assume a new purchaser likely would not want the neighbor to treat their roof as the neighbor’s outdoor space.
  
  After this the initial list is paired down more for various reasons. Then the properties that you have spent time starting to vet start getting redeemed and removed from the auction. Much of your due diligence is simply wasted.
  
  Finally the auction starts. Maybe you still have candidate properties to bid on. You have no contingencies, no inspection, never been in the unit. You need to account for these risks. The property typically ends up selling for more than you would have offered cash only no contingencies on the mls.
  
  Why? I have some theories:
  
  - some bidders have inside info. They may know the previous owner and know it is not thrashed on the insure and that the mechanicals are in good shape.
  
  - inexperienced investors get caught up in the exuberance of the auction.
  
  - inexperienced investors that undervalue the risk and the value of cash offers.
  
  We have bid on a few properties. Never won the auction and only once came slightly close (usually we are not close).
  
  I understand some areas allow redemption long after the auction. Not sure how that would work. Have to wait until redemption period expires before adding value?
  
  Virtually every year I see a post on the local tax auction. I reply with my view and ask them to let me know if their experience matched my description. No one has ever let me know one way or the other. It is my belief my description is still accurate.
  In CA, sb1079 has passed since I last participated in an auction. Make sure, especially if not bidding to OO, that you understand any potential impact. I have not done full research on sb1079 to know if tax auctions are excluded. It would suck to win the auction, start work, and have a preferrred bidder purchase in the sb1079 redemption period.
  Good luck
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Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
1mo
Zero. If I can't defend the deal on cash flow plus principal reduction alone, appreciation is gravy, not the thesis.
The flat-value stress test you described is the right one. If the answer is "no, we'd be underwater" that's not an investment, it's a bet on the direction of a market nobody can predict. Plenty of Colorado investors made that bet between 2012 and 2022 and got rich. Plenty of San Diego investors made it in 2005 and didn't.
On a $400K break-even deal you're probably banking on $11-14K in principal paydown per year depending on rate and term. That's real, but it doesn't cover a $6,000 HVAC replacement or three months of vacancy. The returns look good on a spreadsheet and miserable when you're writing the check.
The way I've been solving this is specifically looking for assumable mortgages instead of accepting current-rate financing. A $400K home with a $340K loan at 3.0% carries around $1,433/month principal and interest. That same $340K loan at 6.9% is $2,250/month. The $817/month difference flips a break-even deal into something that actually cash-flows, and suddenly you're not hoping the market does anything — the numbers already work without it.
If you're stuck underwriting deals at today's rates and keep landing at break-even, it's worth asking whether you're solving the wrong variable. The rate is often more fixable than the price.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
1mo
It should be thesis of the entire investment.

Without appreciation, risk-adjusted returns on real estate or any physical asset is not worth the hairy situations it puts you in.

Cash flow is simply just a baseline survival mechanism; if you're breakeven you're actually sinking. 1.33ishx DSCR is survival, 1.75-2x is real investing, going over 2x is where you start understanding things better.

Appreciation is not just the equity building, but the rent appreciation which helps your DSCR-- do not forget that. Land, scarcity and value adds are the key to it. Almost all three need to be in the deal, but at minimum 2.

This same convo happened with our old friend Cleveland Bob on this forum. He was a flipper, and kept telling people cash flow, cash flow, cash flow naturally as a Cleveland-seller. Someone asked him his biggest regret-- he said selling , and he would've made a ton more if he would've held onto properties. I clarified his biggest regret was then appreciation...not the cash flow he keeps touting.
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Dave MeyerPro Member
Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 355 posts · 829 votes
1mo
Market appreciation (as opposed to value-add, which is a different story) should be treated as a potential return-boost that will likely come one day, but isn't guaranteed. The median home price charts most people cite hide the reality of appreciation, that 'real' (inflation-adjusted) appreciation is a regular feature of the housing market, but it's not linear, and is more a stair-step function. https://fred.stlouisfed.org/series/QUSR628BIS
So, IMO, the game is to get a deal that works and funds itself so you can stay in the game to enjoy the return boosts that come when real appreciation hits. No one knows when that will happen, so you need a combination of cashflow, tax advantages, amortization, and value-add appreciation to maintain the deal and earn a good return while you wait.
I think in the coming years counting on market appreciation is foolish. The data shows we're in for stagnant or declining home prices for the foreseeable future (unless the gov really turns on the money printer again, which could happen, but also could backfire). So, buy under current comps, rely on value add appreciation and cashflow more heavily now. Then, sometime in the future when market forces push prices up in real terms again you look like a genius.
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- V.G JasonPro Member
  Investor · Member since 2022 · 3k+ posts · 3k+ votes
  1mo
  Quote from @Dave Meyer:
  Market appreciation (as opposed to value-add, which is a different story) should be treated as a potential return-boost that will likely come one day, but isn't guaranteed. The median home price charts most people cite hide the reality of appreciation, that 'real' (inflation-adjusted) appreciation is a regular feature of the housing market, but it's not linear, and is more a stair-step function. https://fred.stlouisfed.org/series/QUSR628BIS
  So, IMO, the game is to get a deal that works and funds itself so you can stay in the game to enjoy the return boosts that come when real appreciation hits. No one knows when that will happen, so you need a combination of cashflow, tax advantages, amortization, and value-add appreciation to maintain the deal and earn a good return while you wait.
  I think in the coming years counting on market appreciation is foolish. The data shows we're in for stagnant or declining home prices for the foreseeable future (unless the gov really turns on the money printer again, which could happen, but also could backfire). So, buy under current comps, rely on value add appreciation and cashflow more heavily now. Then, sometime in the future when market forces push prices up in real terms again you look like a genius.
  
  If you're not betting on appreciation, why even invest?
  
  If anything, market stagnation is your window of opportunity. You don't buy into the midst of a rally; the ideal time to accumulate is during the correction or the stagnation phase. Ideally, you catch the last quarter of it, but since nobody can time that perfectly, you manage the risk up front.
  
  You buy now, put enough down so the asset sustains itself to make it 1.25-1.33x DSCR(so 30-40% down, not this dogmatic 20% ******** which rules out 98% of opportunities), hold deep reserves(above the line cost so yes negative carry), and focus strictly on properties with strong extrinsic qualities --premium location and/or value add.
  
  By claiming appreciation isn't the thesis of investing, you are effectively betting on a perpetually stronger dollar (deflation) and assuming you're buying poor locations. Real estate requires a 7-to-8-year minimum hold, but ideally, it's a 12-15 yr+ game. If someone wants to take the other side of that macro bet over a 15-year term-- go for it. You will get destroyed.
  1 Reply
- Jay HinrichsBusiness Member
  Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
  1mo
  the issue is an I have not seen it raised on this thread by very sharp investors.. Is this: No appreciation your STUCK even if your cash flowing a little bit that little bit just does not add up to much of anything unless you have ALOT of units or doors as the BP members like to call them.
  and when burnt out landlord syndrome strikes which it does and it will.. exit is painful without appreciation your going to lose major money your going to lose transaction costs of 7 to 10% of gross and your going to have a HUGE TAX bill in the form of depreciation RECAPTURE again no one talk about that part of the equation. And especially if you did a cost seg on it.. so the only way out is to get on the 1031 Hamster wheel on reinvesting but if your already suffering from burnt out land lord syndrome that may not be an option.. Bottom LINE NO appreciation potential etc its not a deal I dont care if it cash flows..
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- V.G JasonPro Member
  Investor · Member since 2022 · 3k+ posts · 3k+ votes
  1mo
  Quote from @Jay Hinrichs:
  the issue is an I have not seen it raised on this thread by very sharp investors.. Is this: No appreciation your STUCK even if your cash flowing a little bit that little bit just does not add up to much of anything unless you have ALOT of units or doors as the BP members like to call them.
  and when burnt out landlord syndrome strikes which it does and it will.. exit is painful without appreciation your going to lose major money your going to lose transaction costs of 7 to 10% of gross and your going to have a HUGE TAX bill in the form of depreciation RECAPTURE again no one talk about that part of the equation. And especially if you did a cost seg on it.. so the only way out is to get on the 1031 Hamster wheel on reinvesting but if your already suffering from burnt out land lord syndrome that may not be an option.. Bottom LINE NO appreciation potential etc its not a deal I dont care if it cash flows..
  100%. No appreciation or flat to CPI, you're just paying for RE headaches. There needs to be value on top of that.
  The market is somewhat efficient; if it cash flows with minimal down you're paying for risk-adjusted returns that are not worth it which means bad locations, bad tenants, capex nightmare, land with little value-- a mix of that or all of it. It tends to go all in the same direction.
  Appreciation is so important you're better of buying small land plots in very desired areas than buying things like Section 8 or cash flow turnkey properties, or any property that's intrinsic at 20% down.
  1 Reply
- Jay HinrichsBusiness Member
  Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
  1mo
  land in the path of progress.. I bought a 4 acre non buildable tract of land in Sonoma County CA but it was off a already built freeway interchange
  I paid 30k for it.. growth came to me. Carry costs were 300.00 a year in prop taxs and mow it for about 500.00 every 3 years or so..
  25 years later sold it to a developer for 2.2 mil. I guess I could have bought a rental in somewhere in fly over land for about the same.. But for passive long term plays land in the path of progress has made money for many folks.. of course Mainly farmers.
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Igor Ganapolsky
Coral Springs, FL · Member since 2018 · 493 posts · 110 votes
1mo
@Dan H. — your CA tax deed experience tracks. The landlocked parcel with the debris road, the house on stilts over the freeway, the attached unit with the shared roof terrace — those are the kinds of things you can't see from a folio number. And the redemption problem is real: spending hours on due diligence only to watch properties get pulled before auction is a terrible ROI on research time.

Florida's process is different in one critical way that matters for your "waiting until redemption expires" question — there's no post-sale redemption period here. When the tax deed sells, the prior ownership chain is wiped. You get a new deed. That's what makes the FL auction viable vs CA's structure where the clock doesn't start until redemption clears.

Your point about auction exuberance driving prices above what a cash offer would get on MLS is the real risk in any market. The bidders with inside info who know the unit isn't thrashed and the mechanicals are solid — they have an edge that pure spreadsheet analysis can't touch. I've seen it here too. The guys who've been doing Broward auctions for 20 years know properties that casual bidders wouldn't touch.

Where I think there's an edge is pulling comps BEFORE auction day so you know the ceiling, then only bidding when the spread justifies the blind risk. If a property is assessed at $400K and comparable sales on the same street closed at $420K-$450K in the last 6 months, you know your exit price before you bid. You're not speculating on appreciation — you're capturing the gap between the tax-assessed value and what the market actually pays.

But I'll concede your broader point: if you can't get inside the unit, you're pricing in a risk premium that often eats the spread. The ones who do well at tax auctions have either seen the inside or have enough deals that they can absorb a few duds. I'm in the second camp right now — building the analysis system so at least the math is right before the bid, even if the physical condition is still a gamble.
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- Jay HinrichsBusiness Member
  Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
  1mo
  In CA particular VERY FEW actual homes make it to the auction.. 99% get redeemed before the sale. Either by the bank with the mortgage / the owner / or a pre tax sale investor getting ahold of the owner ( which is what we do). The rest is vacant parcels some good some just left overs with little to no value. And others in big sudivisions that were platted 100 years ago and the lots are traded like baseball cards.. Kind of like a Lehigh acres situation if your familiar with that area of Ft. Meyers.
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- Camden Lowrance
  Investor · IN · Member since 2019 · 37 posts · 24 votes
  1mo
  Ok but you still have to wait minimum two years to actually sell the tax deed
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Divin KanyamaBusiness Member
Accountant · Seattle, WA · Member since 2025 · 403 posts · 166 votes
1mo
@Dan Handford From an investor and CPA perspective, I treat appreciation as a bonus—not what makes the deal work. Principal paydown and tax benefits can build wealth, but they do not cover a vacancy, major repair, or rising expenses.
I’d underwrite with little or no appreciation, realistic expense growth, and solid reserves. If the deal still makes sense based on cash flow and principal paydown, any appreciation is true upside. Tax deductions can help, but they cannot rescue a weak deal.
For a five-to-seven-year hold, modest appreciation is reasonable to model, but if it drives most of the projected return, I’d negotiate a better price, create operational upside, or pass. How much of your return comes from factors you can actually control?
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- V.G JasonPro Member
  Investor · Member since 2022 · 3k+ posts · 3k+ votes
  1mo
  Quote from @Divin Kanyama:
  @Dan Handford From an investor and CPA perspective, I treat appreciation as a bonus—not what makes the deal work. Principal paydown and tax benefits can build wealth, but they do not cover a vacancy, major repair, or rising expenses.
  I’d underwrite with little or no appreciation, realistic expense growth, and solid reserves. If the deal still makes sense based on cash flow and principal paydown, any appreciation is true upside. Tax deductions can help, but they cannot rescue a weak deal.
  For a five-to-seven-year hold, modest appreciation is reasonable to model, but if it drives most of the projected return, I’d negotiate a better price, create operational upside, or pass. How much of your return comes from factors you can actually control?
  If you're holding for 5-7 years, don't even invest. Go trade-- because trading is going to require liquidity and this isn't friendly for that.
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Igor Ganapolsky
Coral Springs, FL · Member since 2018 · 493 posts · 110 votes
3w
@Camden Lowrance Florida has a 2-year prohibition on selling after a tax deed sale, but it's not a waiting period where you're stuck — it's a quiet title period. You can absolutely do the rehab, line up the buyer, and get the deal under contract during those 2 years. You just can't close the sale until the restriction lifts.

Here's how it actually works in practice:

Month 1-6: Due diligence, rehab planning, get contractors lined up
Month 6-18: Rehab the property, market it, build your buyer list
Month 18-24: Get it under contract, line up financing/title work
Month 24+: Close the sale

The 2-year restriction is on the *deed transfer*, not on your ability to prepare the asset. Smart investors use that time productively — by the time you're legally allowed to sell, you've already got a buyer waiting and can close immediately.

Also worth noting: the restriction applies to selling at *profit*. If you need to exit early at a loss or break-even, you can petition the court for relief. But most people just plan around it.

The real question isn't whether you can sell — it's whether the numbers work after 2 years of carry costs (taxes, insurance, rehab). If you bought at 50-70% of assessed value like most Broward tax deeds, the spread is usually large enough to absorb 2 years of holding costs and still leave meaningful profit.
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