Why You Should Never Count Future Appreciation When Evaluating a Duplex
Have you ever run numbers on a duplex and thought, “Sure, the cash flow is thin now, but it’ll appreciate, right?”
Appreciation is the frosting on the duplex cake, but not the cake itself. Smart investors—people who actually build wealth, not just talk about it—do not buy based on projected future values that may never come true.
Let’s break down why.
- Appreciation Is Not Guaranteed – Yes, real estate tends to trend upward over decades. But short-term? It can stall, dip, or even drop.
- Market Cycles Don’t Care About Your Spreadsheet – Interest rates go up. Rents flatten. Vacancies rise. City policies shift. All of these can slow appreciation or reverse it altogether.
- You Can’t Spend Equity Until You Sell or Borrow Against It – Unfortunately, future appreciation doesn’t help you replace a roof or furnace unless you borrow against it. Cash flow does.
- Appreciation Can Mask a Bad Deal. Projecting 5-7% in annual appreciation can make a property with negative cash flow not seem like such a bad deal. The trouble is, when appreciation slows due to a cooling market, you’re left with a property that doesn’t support itself. You can predict cash flow and equity paydown.
- Cash Flow Is Your Margin of Safety. While a duplex typically doesn’t have enough cash flow to retire on, it does help you survive downturns and build reserves.
- Ask yourself, “Would I buy this if the value never increased?” If the property breaks even and you never have to put a dime into it, the answer may be “yes” if it’s in a fabulous location. After all, if the only money you ever put into it is the down payment, and the tenants pay off the rest of the building, that wouldn’t be the worst thing ever.
When you buy deals that work on today’s numbers, you’ll be in the right position to actually capture appreciation when it comes. And when it doesn’t? You’ll still be profitable or at least break even.
Don’t build your investing strategy on hope. Build it on math.