Do any of you purchase rentals purely for future appreciation?

[Jeremy Chaser]

My brother and I are both interested in purchasing rental property, and we have what appear to be very different ideas about what a good rental property purchase is. I'm curious what more seasoned investors think of these two methods for assessing rental property to make sure I'm not missing anything.

We are both looking in the same city with a lot of future growth potential. The city is currently investing mega dollars into the infrastructure to make it more desirable, and the market is very hot right now (consistent with most bigger cities currently). I think it would take an act of god for houses to not continue appreciating very solidly for the foreseeable future.

My brother only looks at houses that he would feel comfortable living in. We also admittedly come from a silver spoon background, which makes him ignore what I consider to be good rentals. The type of house he wants to buy is like this:

~200k

Located in a good neighborhood, desirable part of the city.

3 BR / 2 bath, solidly average middle-class home (no fancy counter tops, trim, etc.)

Rents of ~1,400/mo + util

I, on the other hand, tend to prefer something more like this:

~100-130k

Located in more blue-collar neighborhoods. Not crime-ridden or low class by any means, but certainly not a middle-class neighborhood.

3 BR / 2 bath. Very average homes, functional but not attractive kitchens, etc.

Rents of ~1,000-1,200/mo + util

My thought process is that these blue-collar neighborhoods, which also happen to be close to the downtown area where a lot of development is happening, have a lot of room to grow in the future. More importantly, they are priced close enough to the 1% mark that I can hold them for years and the monthly cash flow will be enough to pay for the house + a small positive income stream on top.

My brother, on the other hand, sees such tremendous growth out of the city that he thinks the houses have to be purchased in desirable neighborhoods to see massive growth out of them. My issue with his line of thinking is that if you pay 200k for a house that rents for ~$1,400/mo, you are holding a house for years on end that may just barely cover expenses, or even lose a small amount each month, in hopes for massive appreciation at the end.

Am I crazy for thinking that is a risky proposition when you can buy other homes that will earn you money each month while you wait for that hopeful massive house appreciation in 10 years?