As we have mentioned before, we like to refer to the Appreciation benefit as “icing on the cake”. While it’s one of the four main benefits of real estate investment properties, it’s something you don’t have a lot of control over and, often won’t realize much of in the first year of ownership or, perhaps even longer depending on market conditions. Market factors often dictate the amount of gain you will realize over the long term. Appreciation is something that just happens to your investment while your tenants are paying for it…for you. The property value has the potential to keep on growing (appreciating) over the long term such that, when the time comes to either refinance the property, or sell or exchange the property, you are able to do so and reap the benefit of more cash in your pocket or in your portfolio.

Real estate, for the most part, increases in value over time, assuming it is properly maintained. If you consider yourself an investor who is interested in building long term wealth—as opposed to having a “get rich quick” mentality, you will realize the oh so sweet benefit of Appreciation in your properties. Often times you will be able to add value to your properties by doing some simple but necessary maintenance like renovating bathrooms and kitchens, fixing roofs, or adding low maintenance landscaping.

How much your properties are appreciating in value isn’t something you should be overly concerned with. Your main goal with an income-producing property should be just that—to produce a steady stream of income from your asset.

We won’t spend much more time on this benefit since it’s fairly easy to understand.

So for simplicity sake, let’s assume that the value of rental property-the duplex in our example, has not increased after the first year. Your worksheet should now look like this.

The worksheet is almost complete! What does it all mean? We will next examine how the Appreciation Benefit plus the other benefits of income, principal reduction, and depreciation are used to determine your Return on Investment; and how this can be used to figure out if an investment property is worthy of pursuing and having in your portfolio.