Appreciation - how to factor it in?

[Riley F.]

For buy and hold investors out there, how do you guys think about appreciation and how do you factor it in to your buying and selling decisions, if at all? What key factors do you use to measure the potential for appreciation and where do you find this data?

As an illustrative example, would you be willing to go down in CoC yield from 15% to 10% for the potential for appreciation, all other things being equal (I know that they never are).

[J Scott]

Originally posted by @Elizabeth Colegrove:

I factor appreciation in the fact that I invest in areas that experience appreciation in both rent and market. It is important to me the area appreciate's more than inflation in order to keep my cash flow intact. 

To me, that's like saying, "I buy stocks that I know will go up for the next 30 years."

Sounds good in theory, but even Warren Buffett doesn't have the ability to predict company performance long-term -- which is why he buys companies and controls their futures.  The equivalent for a real estate investor would be to buy an entire city (and run the city council) in order to have full control over its growth and expansion.  Unfortunately, that's not feasible, which means real estate investors are -- for the most part -- at the mercy of market and political forces that they have little control over.

For example, many would say that northern CA (Bay Area, Silicon Valley) will continue to appreciate based on it being a technology hub where a disproportionate number of people make disproportionately large salaries and income.  Well, what happens if, in 20 years, Silicon Valley is no longer a tech hub?  It would just take a few big companies moving out of the area -- due to tax issues or the political climate -- to change the entire local economy.

You may think it could never happen, but are you willing to bet large sums of money on it?  Many people are.  I'm not.  To each his own.