Santiago townhouse: how much cash flow before appreciation counts?

I’m comparing a Santiago townhouse with higher-yield options in cheaper markets. The townhouse has a modest current yield, but stronger employment and transport fundamentals; the cheaper alternatives produce more cash now but seem less liquid.

I’m leaning toward requiring a minimum net cash return before assigning any value to appreciation. What downside tests would you run after vacancy, management, maintenance, insurance, property tax, financing and tenant turnover? I’m looking for reasons not to buy, not reassurance about Santiago.

Treat appreciation as an upside case, not as the number that makes the purchase work. Start with no growth and conservative operating costs. If the townhouse cannot remain cash-positive while funding a maintenance reserve and absorbing a vacancy, then you are effectively paying each month for the growth thesis. That may be intentional, but it should be visible.

The missing figures are purchase price, realistic rent, financing terms and intended holding period. “Modest yield” could mean acceptable or deeply fragile depending on leverage. Is your minimum return measured before debt, after debt, or against all cash invested? I would calculate all three rather than let one percentage carry the decision.

I disagree slightly with giving future growth no value at all. That can make a high-yield property in a weaker location look safer than it really is. I’d run three cases: no appreciation, a restrained growth case, and a fall in both value and achievable rent. The deal should survive the first case; the other two show how much you are paying for location and liquidity.

Build the expense side from actual items rather than applying one broad percentage. Include management even if you initially plan to self-manage, obtain current insurance and property-tax figures, and budget separately for routine maintenance and larger replacements. For turnover, allow for vacancy plus cleaning, repairs and re-letting costs—but avoid counting the same empty period twice. Then stress the model with a longer vacancy and one significant repair in the same year.

Lara’s scenarios and Mia’s expense breakdown fit together. I’d add separate leveraged and unleveraged results. A property can look sound before financing but become very sensitive to borrowing costs or a small rent reduction afterward. If the loan terms can change, model that too rather than assuming today’s payment lasts for the whole holding period.

Rafael, the holding period still matters here. Better liquidity has more practical value if you may need to sell relatively soon; over a longer hold, recurring weak cash flow compounds. Also compare the alternatives using the same vacancy and reserve assumptions. Otherwise the cheaper markets may appear to yield more simply because their turnover or maintenance has been modeled less strictly.

A workable rule would be: require the base case to produce an acceptable return after debt service, vacancy and reserves, with appreciation set to zero. Then score employment, transport and likely resale liquidity separately as reasons to prefer one qualifying property over another. If the Santiago townhouse fails the cash requirement, those strengths should not rescue it. If it passes narrowly and also survives the downside tests, accepting less current income becomes a deliberate trade-off rather than an excuse.