Looking for 4% appreciation with 1% rent ratio

[Ming Zhao]

Hi,

We're looking for suggestions on which cities/areas to invest. We are a buy and hold investor. We have several out of state rentals and are looking to buy more. In calculating ROI, these criteria seem to be the sweet spot for us (balance of cash flow and appreciation):

• 4% yearly appreciation on average for the next several years. This number influences ROI the most.
• Price around $200,000 all in.  
• Rent around $2,000

If we put 20% down payment, and assuming expense is 40% of rent and loan is 4.75% for 30-year, then

• Down payment = $40,000
• NOI = $1,200 / month
• Principal reduction = $2468 for year 1
• Cash Flow = $4392 for year 1
• Appreciation = $8000 for year 1
• ROI is a very healthy 37% for year 1, and will increase in subsequent years.

I understand if we buy cheaper houses (let's say $100,000), then the ROI can be higher. However, the downside is that we may end up dealing with more houses and loans.

Any suggestion?  Thanks a lot.