Discover how appreciation can transform your investing portfolio.
Think you know real estate investing? Prepare to be surprised. My latest deal analysis revealed something most investors need to realize about where their profits really come from. Let’s look at the numbers.
In February 2015, I purchased a rental property for $34,000. Fast-forward to August 2024, and I’m about to sell it for roughly $200,000 after expenses. Here’s where it gets interesting: while I collected about $109,000 in rent over the years, the real gain came from the property’s appreciation. This isn’t just a one-off occurrence; it’s also a trend I’ve noticed across my other properties:
Breaking down the numbers. Over nine and a half years, I collected $109,000 in rent and spent around $75,000 on expenses, including maintenance and management fees. Some of these were capital expenditures, like a new AC unit or re-piping the property, which added to the property’s basis rather than being direct expenses. After doing the math, the net cash flow was about $34,000, but the appreciation added a whopping $166,000 to my bottom line.
The 80/20 rule of real estate investing. As I dug deeper, I realized this is almost like the 80/20 rule in action. Around 80% of the gains over the long term came from the property’s appreciation, while only 20% came from cash flow. This pattern holds true across different neighborhoods and property types in Jacksonville, with some exceptions. Properties in rougher areas might struggle to generate sufficient cash flow, while high-cost properties may drain your bank account before the appreciation kicks in.
What this means for your investment strategy. The key takeaway? Don’t get too caught up in monthly cash flow numbers. If you find a good property in a solid area that offers even a modest cash flow, it’s often worth the investment. The real win in real estate comes from long-term appreciation, especially in markets like Florida, where properties tend to outpace inflation. So, the next time you debate whether a property is worth it, consider the big picture—appreciation is where the magic happens.
Many investors miss a hidden driver of profitability in real estate: appreciation. While cash flow is important, the real magic often happens as property values rise over time. This insight can unlock a new level of wealth-building potential.
If you have any questions or want to discuss your investment strategy, please contact me at (904) 405-1995 or via email at Jeff@PursuitRealEstate.com. Remember, sometimes the best investment strategy is to simply buy and hold, letting time and appreciation work in your favor.
