Do you include home appreciation in your pro forma?

[Clint G.]

Hello!

I'm looking to purchase my first investment property.

I met with a couple of local investors/brokers yesterday with the intent to analyze multi-family properties. I was surprised that they steered me away from that to purchase SFH's. Their selling point to doing this was several things but here are the majors:

1. Home appreciation (they assumed 5% a year) and principle pay down. They included this in the pro forma.

2. Longer term/better tenants (depending on the type of house you purchase (A,B,C) and rent cost etc).

3. SFH's a good place to start for a first timer. Advice was to purchase a nice multifamily later when more capital is available.

I'd appreciate feedback on each of these, but I'd especially appreciate feedback on the first bullet, including home appreciation and principle pay down in your pro forma. This isn't something I've seen before but it definitely makes the numbers look sweeter, obviously.

Thanks for your input!

[John Bannister]

@Clint Galloway

I invest in SFs Houston and San Antonio. San Antonio is one of the fastest growing cities in the US and Houston is still crunched from Harvey in many ways. The point is that both are relatively large cities with lots of people needing rentals. In neither case do I plan on appreciation. When I crunch my numbers, I purposely neglect appreciation. The reason is because it is the most conservative way look at a deal. Think about it this way, if for some reason the area tanks, do you want a property that offers a 5% return or a 10%? I treat appreciation as a nice to have, but I never bank on it.