This is the increase in value of capital invested, and is taxed at the capital gains rates (assuming it's long term capital gains).So to answer your question, the gain on your house that you've lived in for at least 2 of the last 5 years is a capital gain, but it won't be subjected to capital gains taxes because of the "2 of the last 5" rule. 

To answer your question of local appreciation...

Unfortunately, there is no easy answer to this question. 

The answer we gave to the woman was put as such: the name put on the deed of the house is the name of the investor that we hand over the signed contract to (aka the buyer).

Short answer, give a call to your contractor license board and explain what you want to do, it could be anonymous.

Assuming for the sake of answering your question, if you paid $40k, you would want to invest no more than $30k to arrive at the market rental rate of $700/month.  

If you are looking for a place to invest disposable income and get a moderate return higher than that of the stock market the answer is probably yes.

Thank you all for the answers! 

You are going to love hearing an answer like this one. 

Could include more (an appraiser would) but I wanted to give you exactly what you asked for.Let me know if you have any more questions about Sacramento multifamily and I'll try to get them answered for you :-)