Appreciation
An increase in a property’s market value over time, whether from market conditions, inflation, or improvements the owner makes (often called forced appreciation). Unlike cash flow, appreciation is unrealized until the property is sold or refinanced. Values can also fall — appreciation is a possibility, not a guarantee.
Related terms
Comps (Comparable Sales)
Recently sold properties similar to a subject property in location, size, age, and condition, used to estimate what the subject is worth. Appraisers, agents, and investors adjust comp prices up or down for differences before settling on a value. The quality of a valuation is only as good as the comps behind it.
Depreciation (Tax)
A federal tax deduction that lets owners of income-producing property recover the cost of buildings and improvements — not land — over a set recovery period. U.S. rules currently assign residential rental buildings a 27.5-year period. Depreciation reduces taxable income without a cash outlay, and prior deductions may be subject to recapture when the property is sold.
Cash Flow
The money left over after all of a property’s bills are paid from its income — operating expenses, loan payments, and reserves. Positive cash flow means the property pays for itself with margin; negative cash flow means the owner feeds it. Cash flow is the recurring return, distinct from appreciation and tax effects.