Appreciation FAQs

What is appreciation?

Appreciation is the tendency for property value to go up over time.

What is a reasonable appreciation rate when modeling Nomad?

According to Zillow research the historic average appreciation rate is approximately 3% nationwide. When modeling Nomad generically… not for a specific area… I recommend using this 3% appreciation rate. There probably are other markets where I’d recommend lower the estimated appreciation rate to be less than 3%.

To be conservative, even in markets where I’d expect appreciation to be higher than 3% per year (like the Northern Colorado market), I would still NOT recommend using higher than 3%.

Is appreciation just inflation?

I like to think of it that way. The cost of the materials and labor to build a home tends to increase with inflation. And if the difference between resale homes and new construction homes gets too far apart people will tend to seek out value and buy the lesser expensive ones. So, the prices of new construction and resale homes tends to remain pretty close.

If appreciation is just inflation, aren’t we just keeping up with inflation by doing the Nomad model?

Great question. The answer is no. If you are buying a $300,000 home and that home is just keeping up with inflation by increasing at a rate of… let’s say… 3% per year, then the property value is going up by about $9,000 in the first year.

If you had bought the property for cash with $300,000 down and you just made $9,000 you could argue that you’re investment of $300,000 was just keeping pace with inflation. But with Nomad, we’re often buying a $300,000 home and putting 5% down… or about $15,000. In other words, we’re controlling a $300,000 asset for $15,000 and that $300,000 asset just went up in value by $9,000. So, we really just “made” a $9,000 return on a $15,000 investment.

Even if the property value did not increase and we were just paying off the loan on the property. The returns from just paying off the debt on the property tends to be compelling by itself to encourage people to do Nomad.

Does Nomad work with no home appreciation?

Yes, it is still worth doing Nomad if you have no home appreciation.

Using the same example from the Catch Up Nomad Example with a $286K Property, with all the same assumptions including a 3% home appreciation rate, you’d accumulate $14M compared to just over $5M investing in stocks. Here’s the summary image of that.


If we take all the same assumptions but change the home appreciation rate from 3% per year to 0% per year, here’s what that ends up looking like.


As you can see, you still end up with almost $10M versus $4.4M if you had invested the same amount in the stock market at 10%. Some astute people may ask why did you earn less with the stock market if you only changed the home appreciation rate. Another great question… it is because we’d invest less overall in down payments and negative cash flow since the property values are not going up.

Here’s a final… logical extension of that question… what happens if property values do not go up and neither does rent. In other words… no home appreciation and no rent appreciation. In still other words… property value nor rent goes up at all over 40 years. What does that look like? Using the same assumptions as above with just those two changes, here you go:


What happened! It is better to invest in stocks. Well… what happens is that the slight negative cash flow we had when we originally bought the properties never goes away. In our initial model, we see our expenses like the mortgage payment remain fixed and rents increase even slightly giving us more positive cash flow over time. If we have negative cash flow for long periods of time, we’re investing a lot more into the stock market (since we invest all down payments and negative cash flow)

If we had positive cash flow, we’d expect Nomad to continue to outperform the stock market.

Does appreciation usually exceed inflation?

No. There are some great studies done by economists Case and Schiller than suggest that real estate has largely kept pace with inflation over a very long period of time. In the short term, real estate prices can outpace inflation or under- perform compared to inflation.

Does rent appreciation usually match house appreciation?

For the most part, rent inflation tends to keep pace with house inflation. When I originally modeled Nomad I used to model it with rent increasing less than the home values were increasing. I felt that was more conservative. Then I saw the following chart from the National Association of Realtor’s chief economist showing the rent versus home price chart.


Based on this chart, it seems to be that while the rent or price can outperform one or the other, the overall trend is that they tend to perform about the same over a long period of time.

Will my expenses increase faster than appreciation?

One of the interesting things about expenses on rental properties is that some of them are fixed and don’t change (like the monthly mortgage payment) and some increase with inflation like taxes, insurance, maintenance, etc.

In the chart below you can see that the mortgage payment (which does not increase) is a major percentage of your overall expenses. Remember, this payment is fixed and does not increase over time. All the other ones can and probably will.


Because the largest part of your expenses is fixed the chance of your overall expenses increasing faster than appreciation is not likely.

Is there ever negative appreciation?

Yes. There have definitely been markets and periods of time in the past where property values have declined. It is a real possibility. However, over a very long period of time, real estate values have tended to go up.

Do property value ever go down?

Yes, sometimes property values go down.

Does appreciation vary?

Yes… even though we model 3% per year for many of our presentations on Nomad, appreciation can vary over time and from property to property. We use 3% as a long term average, but we might see -3% one year and plus 6% another year.

Is appreciation the same for all houses in a city?

No. Appreciation can vary from house to house so that a house on one side of the street goes up in value more than a house on the other side of the street.

Is appreciation fixed each year?

No… appreciation is not fixed for the year. It can vary. For example, you could have really high appreciation for the first half of the year and see property values decline over the next half of the year.

Does appreciation vary from house to house?

Yes. Appreciation of certain houses can be more than others. Over time people tend to value quality, so quality properties in quality locations tend to appreciate slightly better.

Does appreciation vary from neighborhood to neighborhood?

Yes. Appreciation can vary from one neighborhood to another in the same zip code and city.

Does appreciation vary by price range?

Yes. Appreciation can be better in different price ranges as supply and demand for properties in those price ranges improve and decline.

What can I do to improve appreciation on the houses I buy?

While it is hard to control big picture economic factors around your property like the financial well-being of your city as a whole, you can do some things to improve the odds that your property will appreciate.

Some of this factors that affect appreciation is the condition you keep the property.

What is forced appreciation?

When we buy a property that needs to be fixed up and we do that fix up, we often call that forced appreciation because we did something to force the property to be worth more than before we did the updating or fixing up.

Can I use appreciation to determine home values?

Sort of… while you can do some rough math to see what a property might be worth based on appreciation rates, it is not the same as pulling up sales that are comparable to the property you’re considering to see what other similar properties sold for recently.

Where can I find out what the appreciation rate of my city is?

Many real estate agents will be able to provide that data for you for your city. You may also be able to search for “Appreciation Rate Fort Collins” and replace “Fort Collins” with your city.

Will appreciation help me qualify to buy the next Nomad home?

Probably not directly if you’re just holding on to the properties. However, if you’re selling properties then taking appreciation you’ve captured through a sale and using it as a down payment, it probably will help you qualify for your next home.

Can I use the appreciation to buy more Nomad houses?

Yes. You can sell your home and use that money as down payment to buy more Nomad homes. Or, in some cases, and it is not something we typically recommend, you could refinance and pull cash out of your homes to use that for a down payment.

Can I use appreciation for my down payment on my next Nomad house?

Yes, you could do that in one of two ways. First you could sell your property and use the proceeds (which would include any appreciation) and use that as your down payment. Or, secondly, you could refinance your property and pull cash out and use that cash out as a down payment for your next Nomad property.

What happens to appreciation as interest rates go up?

As interest rates get higher, it is harder for people to afford more expensive homes, so it tends to suppress prices.

What happens to appreciation as interest rates go down?

As interest rates go down, monthly payments required to buy homes becomes easier which tends to raise home prices.

Does it cost more to insure a home as it appreciates?

Yes. As your property value increases you’ll want to make sure you have adequate insurance coverage in case of a claim on your property. So, you’ll end up increasing the amount of coverage on your property over time and therefore increase your cost of insurance.

Do nicer homes appreciate faster or slower?

Nicer homes tend to appreciate faster than homes that aren’t as nice. I should point out that this is relative to the other homes in the same price range.

Nomad Calculator Classic FAQs

What is the Nomad Calculator Classic?

The Nomad Calculator Classic is the tool that I wrote to model and create charts that model the Nomad investing strategy.

It allows you to enter about a dozen assumptions and it will pretend that you bought one house per year for 10 years then held those properties for 30 more years (40 years in total).

I personally use the Nomad Calculator Classic to make the slides for the various Nomad classes that I teach and to model what Nomad might look like for clients. Many of the classes I teach will use Nomad numbers from the Northern Colorado real estate market, but not all Nomads are in the Northern Colorado real estate market and they might want to see what the numbers would look like in their real estate market with very different assumptions. The Nomad Calculator Classic allows them to change the assumptions and see how it might look in their local market with their own assumptions.

Nomads and potential Nomads can use the Nomad Calculator Classic to model what Nomad might look like for them. They can change the assumptions and see how the Nomad model does. This allows them to see how things like purchase price, rent, appreciation rates, taxes, insurance and many other things all affect the Nomad model for themselves.

Why do you call it “Classic”?

The day I built the Nomad Calculator Classic it was out of date. I had originally planned to sit down and model out a very basic Nomad strategy… what we now call the vanilla Nomad model of buying 10 houses over 10 years and keeping those houses until all of them are paid off 30 years later (year 40 in the model since it takes 10 years to acquire all the properties).

I plan to make a much more robust calculator that will allow for a lot more variation of nuance in the modeling. This new calculator will be a Nomad calculator but I’ve used the word classic to describe the original one from the beginning to differentiate the two.

How do I access the Nomad Calculator Classic?

You can access the Nomad Calculator Classic at:

What does Nomad Pro Forma Assumptions mean?

With the Nomad Calculator Classic we are predicting the future. In economic modeling, we call that a pro forma. So, the assumptions you enter in will affect what results the calculator generates and displays.

What do I enter in the Property Assumptions?

For the Property Assumptions section in the Nomad Calculator Classic you will enter in the assumptions you are making about the properties you’ll be buying and the real estate market. Things like the price of the first home, home much home values increase each year, what is the original rent and how much does rent go up each year, etc.

We will discuss what each input means below.

What do I enter in the Other Assumptions?

The Other Assumptions section on the Nomad Calculator Classic allow you to express your assumptions about things we typically use in the modeling that are not specifically about the property itself.

For example, we ask what the cost of a year of college is today and how much college costs are going up each year (so we can see if you’ll have enough money with Nomad to pay for college in the future). We also ask what return you could get in the stock market so you can compare how Nomad would do compared to investing the same amount of money in the stock market.

What is Initial Purchase Price and what should I use?

The Initial Purchase Price is the price of the first home you purchase with the Nomad model.

The calculator assumes you’re buying that house in the first year and that the house values will be going up each year by the Home Appreciation Rate (which we will cover next) each year. So, in the second year you’re buying essentially the same house but at the appreciated rate with the same rent but appreciated.

I recommend finding an actual property in the MLS that you are considering buying and use an actual purchase price (plus the percentage you use for Seller Concessions) to use in the calculator. Enter the number without commas and without a dollar sign. We will talk about Seller Concessions shortly.

What is Initial Monthly Rent and what should I use?

The Initial Monthly Rent is the rent you can get for the property the year that you buy it. Realize that the Nomad model has you move into the property for the first year, so you’ll never really rent the property that first year, but we use it just the same.

I recommend that you use the actual rent you could get for the property when you buy it. Enter the rent number without commas and without a dollar sign. You’ll be able to say at what rate the rent is going up each year as another separate assumption.

What is Home Appreciation Rate and what should I use?

Home Appreciation Rate is the rate at which the prices of homes are increasing over time in the model.

This should be the long term average appreciation rate for your market since we use this same rate for all 40 years. In most markets, I think using a long term appreciation rate that is similar to what inflation will be is a conservative, prudent number. For our local market I recommend using 3 (which means 3%). If you use .03 for 3% you’ll actually be calculating it at 3 hundredths of a percent which is almost zero.

What is Rent Appreciation Rate and what should I use?

Rent Appreciation is the rate at which the Initial Monthly Rent increases each year. You entered in rent and rents tend to increase over time with inflation. Remember, that we are assuming this number happens every year for 40 years so be careful to avoid using Rent Appreciation Rates that are based on short term increases. I’d recommend that you use a number close to the long term inflation rate for this.

I’ve seen chart showing that over a very long period of time, rents tend to stay in line with home prices. In other words, over decades rent and home prices tend to grow at about the same rate. It is true that some years, rents go up much faster than home prices and that in other years home prices rise much faster than rents. But, over a long period of time, they tend to track together. For that reason, I recommend that you use the same appreciation rates for Home Appreciation Rate and Rent Appreciation Rate. Of course, you can test what if scenarios and see how having one higher than another changes your numbers for Nomad, but when I do most of my modeling I set them to be the same.

In the Northern Colorado real estate market, I’d recommend using 3 which means 3% for Rent Appreciation Rate. That means that rents are going up by 3% each year. A property that rents for $1,000 per month will rent for $1,030 per month in the next year.

What is Seller Concessions Percentage and what should I use?

Seller Concessions are when a Seller contributes toward your closing costs or loan costs. When we model Nomad with the Nomad Calculator Classic, we like to raise the price of the home you’re buying and ask the Seller to contribute that premium back as closing costs. It allows you to finance your closing costs into the loan.

So, when entering in Seller Concessions to the calculator, I usually suggest that you use 2 which means 2% of the price of the home for each purchase will be credited back to you to pay for closing costs. As the home prices go up over time, your Seller Concessions increase as well to cover the higher closing costs.

If you’re increasing your interest rate instead of having the seller contribute toward your closing costs, I’d recommend that you set your Seller Concessions to 0 (zero) and increase the interest rate so that your lender will credit you money back to cover all your closing costs.

What does Closing Costs = Seller Concessions mean?

Previously we talked about Seller Concessions, but why do I make a point of telling you that Closing Costs = Seller Concessions? I do it because I want you to realize that we are taking into account closing costs in the model. Your closing costs are assumed to be equal to what you set Seller Concessions to previously.

That’s why I recommend that you enter in 2 for 2% for Seller Concessions. In Northern Colorado that will cover most of your closing costs. In other markets you may want to adjust your Seller Concessions percentage to be more in line with what your closing costs will actually be.

What is Down Payment Percentage and what should I use?

The Down Payment Percentage is the percent of the purchase price of the house in that year that you will be putting up as a down payment. It is always the same percentage for each purchase of 10 houses over 10 years, but as the house prices change with the House Appreciation Rate each year, the dollar amount of the down payment will change accordingly.

For most Nomads, this will be 5 which means 5%. 5% is the lowest down payment that we can do for all 10 loans and since the rate is the same for all 10, that is what we typically use. I do realize that many times Nomads will use a smaller down payment for their first property, but the Nomad Calculator Classic does not allow use to easily enter in different down payment amounts for different loans. That’s one of the improvements I’ll be making in the new calculator when I build that. In the meantime, use 5 for 5%.

You can also see how the model would be different if you put 10%, 20% or even more down for all 10 houses.

What is Loan Interest Rate and what should I use?

Loan Interest Rate is the interest rate on your mortgage for the property.

Ideally, when I do the next version of the calculator you’ll be able to enter in different interest rates for different properties to better model it, but for now, just enter in the interest rate you can or are likely to get over the next 10 years. Also, if you are going to be putting less than 20% down and will have Private Mortgage Insurance (PMI) I recommend that you factor in taking a higher interest rate to pay a single one time up front PMI payment rather than having monthly PMI since the calculator does not calculate monthly PMI by itself. Yes… another thing I plan to add in the new calculator when I do get around to building it.

If you got a 4.5% interest rate, then enter 4.5 without the percent sign.

What is Yearly HOA and what should I use?

Yearly HOA is the yearly homeowner’s association fees that you’ll need to pay for the properties you’re buying. If the property you’re considering will have an HOA, go ahead and enter that number here. In a moment I’ll talk to you about the HOA Appreciation Rate but realize that the Yearly HOA number is the current HOA for one property. The calcultor will assume that you have that HOA on every subsequent property you buy.

What is HOA Appreciation Rate and what should I use?

The HOA Appreciate Rate is the rate which the Yearly HOA is going up each year. HOA fees have tended to go up faster than inflation, so you may want to use either the long term inflation rate or something slightly higher. For my modeling I tend to use 3 which is 3% per year increase in the HOA fees.

What is Property Insurance Rate and what should I use?

The Property Insurance Rate is the percentage of the value of the property that would equal the cost of insurance on that property each year.

We use a percentage of home value because your insurance cost will increase as properties become more expensive. So, to get the right percentage to use, call your insurance agent and get a quote for insurance on the property you’re considering buying for the year. Then, divide the cost of the insurance by the purchase price of the property. This, or something slightly higher is what you will want to use.

By doing insurance this way, we are automatically increasing the cost of insurance each year at the same rate that you’re increasing the value of homes. Since I recommend that you use something close to inflation for the Home Appreciation Rate, your insurance should also go up by about the inflation rate each year.

In our local real estate marketing in Northern Colorado, I typically use .5 for the Property Insurance Rate (which is half a percent of the value of the home each year in insurance). That means on a $300,000 home the insurance for the year would be about $1,500. That is about right for our market. Use the number that makes sense for your market with the help of your insurance agent.

What is Property Tax Rate and what should I use?

Similar to the Property Insurance Rate, the Property Tax Rate is the percent of the property value that is the cost of property taxes for the year. Again, just like the Property Insurance Rate we discussed above, this scales as property values go up.

For your area, find out what the property taxes are on the property you’re considering buying and divide that by the price of the home. That should give you the Property Tax Rate you may want to use. In our local market in Northern Colorado I typically use .6 which is 6 tenths of a percent of the value of the home each year in property taxes. On a $300,000 home that is about $1,800 per year. That’s pretty close and it scales as property values go up over time.

What is Maintenance Reserve and what should I use?

The Maintenance Reserve is the percent of the gross rent each year that we set aside for maintenance on the property. Unlike the Property Insurance Rate and the Property Tax Rate which are percentages of the value of the home, the Maintenance Reserve is a percentage of the gross rent collected.

However, just like the Property Insurance Rate and the Property Tax Rate which scale with home values going up, the Maintenance Reserve scales as rents go up. Think of it as we’re setting aside a certain percentage of rent for maintenance on the property each month and keeping that in a savings account until we need to spend it.

For most of the Nomad calculations I do, I keep this number at 12%, but I could easily make some cases for using a higher (or, in some rare cases like buying exclusively new construction homes each year and lease option exiting with them, a lower number). For properties that have lower rents (especially less than $1,000 per month), you may want to bump your Maintenance Reserve number up. I wouldn’t balk at 12 – 15% or more for that. The 12% I use in our local market is based on rents in the $1,500 to $2,000 range.

What is Property Management Rate and what should I use?

The Property Management Rate just like the Maintenance Reserve is a percentage of the gross rents received each year that we’d pay to a property manager if we had one managing the property for us.

Most Nomads will be managing their rental properties themselves and so we almost always use 0 (zero) here. However, if you were having a property manager manage the property for you or wanted to offset some property management expenses here, you could add that. For professional property managers, especially in Northern Colorado, it is not unusual for them to charge 8 – 10% of gross rents collected. So, I’d enter that as 8 or 10 if I were to model that. Again, I don’t usually do that… I almost always use 0 (zero) here.

What is Yearly College Cost and what should I use?

When you’re thinking about the College Nomad model and trying to plan for what college may cost you for your kids or grandkids, it helps to be able to know what college might cost with inflation in the future. That’s what the Yearly College Cost (combined with College Cost Appreciation) deals with.

For Yearly College Cost, enter in the total cost of college at the start of your Nomad model including room, board, tuition and other fees like books. This is for a single year of college for a single person. When I teach the College Nomad model I talk about how to deal with multiple kids in college at the same time and advanced degrees.

The default for me to enter here is 40000 which is $40,000. If your kids or grandkids decide to go a less expensive school… great; you’ll have a surplus. If they do go to a more expensive school then you’re prepared.

What is College Cost Appreciation Rate and what should I use?

Like Home Appreciation Rate and Rent Appreciation Rate, the College Cost Appreciation Rate is the inflation rate for college costs. Except… in my opinion, college costs are increasing faster than appreciation. If I typically use 3% per year for home and rent appreciation, then I might use 4 or more likely 5% for college cost appreciation. So, I typically recommend 5%.

What is Stock Market Return and what should I use?

The Stock Market Return is the return rate you can get each year over a 40 year period in the stock market. There have been quite a few studies done on what that return might look like and it is all over the place. Some really smart people like to use 6 to 8% here, but I tend to try to give the stock market the upper hand here and say that optimistically it could earn you 10% per year. For 10% a year, I’d enter 10 in the calculator.

Do I really think the stock market will go up 10% per year consistently for the next 40 years? Not a chance. But… if we’re going to compare the stock market to the Nomad model, I’d rather be aggressive and optimistic with the stock market return numbers and handicap Nomad by being what I consider to be very conservative.

What is Income Tax Rate and what should I use?

The Income Tax Rate is your effective tax rate or the weighted average of the different income tax rates you pay. It is used to model what the depreciation benefit is in the Nomad mode so try to be accurate.

When I teach classes I typically let it default to the 29 which is the 29% effective tax rate of your income tax. I admit taxes are not my area of expertise but I have not had anyone claim that my number is exceptionally high or low. For you, look at your tax return from the previous year or talk to your CPA to find out what number you should use for modeling this; that’s the best thing you can do.

What is Display Nomad Type and what should I use?

The Display Nomad Type determines which charts are used and displayed below the calculator once you click on “Calculate!”. I use it to keep the charts for different classes separate.

What is Inflation Rate and what should I use?

The Inflation Rate is what you expect inflation will be. It is used when we adjust back dollars in the future to their value in today’s dollars. For example, when you’ve owned homes for 32 years and your properties are worth $6M dollars, what is that in today’s dollars? We take the inflation rate and figure that out.

To be clear: we do not use the inflation rate in any of the calculations to determine value of properties, rents, maintenance, insurance, taxes or anything like that. It is only used to tell you what the value of things in the future would be in today’s dollars.

I typically leave the Inflation Rate at 3 which is 3% per year. I think that’s a reasonable guess as to what inflation might be per year over the next 40 years.

What do you plan to include in the new Nomad calculator?

I have so many different things I’d like to add to the new Nomad calculator I plan to build. Here are several of the ideas I have:

  • First off it will store all your calculations in a database so you can revisit assumptions.
  • You’ll be able to change all the assumptions for each house independently.
  • You’ll be able to do more or less than 10 houses.
  • You’ll be able to model lease option exits.
  • You’ll be able to model different interest rates for each house.
  • You’ll be able to model variable rate interest rate loans.
  • You’ll be able to do monte carlo simulations on your portfolio.
  • You’ll be able to mark properties as actual purchases and then model future purchases beyond those.
  • You’ll be able to model buying below (or above market).
  • You’ll be able to model different appreciate rates for each house and different appreciation rates for different periods of time on each house.
  • You’ll be able to compare multiple what if scenarios
  • Plus, much more…