As I assess mobile home parks, I’m trying to answer a question: how much should appreciation count towards the return I’m willing to buy at? The return has three parts: - Cash flow: What’s left after operating expenses and mortgage payments, allowing for reserves and capital work. - Principal paydown: The mortgage balance reduces, building equity. It adds to my return, but it’s not money available to spend. - Appreciation: The park increases in value. I can realise that gain when I sell, or access equity through refinancing, which adds debt. Appreciation is the part I’m still working through. I’m thinking about it in two ways: 1) Improved operations: Increase net operating income and, at the same cap rate, the park’s value increases. 2) Market-driven appreciation: A buyer pays more for the same income, meaning a lower cap rate. That can also move in the other direction. The first takes time and money and is the reward for the work I put into the park, after accounting for what those improvements cost. The second is harder for me to budget for - do I include an assumption for market appreciation, and if so, what would justify it? For experienced owners, how do you account for appreciation when evaluating a park?