Is 2.5% a good cap rate? "Gambling" on appreciation?

[J. Martin]

I recently saw a deal on a duplex in San Francisco in a prime neighborhood with a cap rate on existing rents of 2.5%. Rents a bit below market, but not crazy. Building in good condition. Great location. This number will look insane to 90% of people on BP. Obviously, part of the expected returns on a property like this are the appreciation returns. Historically, these have been phenomenal in SF. Prices barely dropped during the crisis and are already well above that for most locations. Limited space in a dense, unique metropolitan area. But you'll likely be coming out of pocket every month unless you buy cash or put down a crazy big downpayment.

So is buying a property at a 2.5% cap rate in a prime neighborhood in a prime city like SF really more risky than buying a property with large amounts of cash flow today in a B or C area? If you look at the price volatility over time, especially through the crisis, the SF property makes it look like much less price risk and income fluctuations. On the other hand, you don't get any returns unless it keeps going up.. I own in the East Bay, but not in San Francisco now.. Thoughts?