Raising the rent does improve return, but appreciation drops it, if you calculate it the correct way.

That is, if you calculate it based on equity you could get if you sell (net of fees and taxes) , rather than your initial investment.

Let me give you an example:

I pay 50,000 for a house. It rents for 1,000, and my return is 10%.

Let's say the rents rise to 1200, and the house value quadruples to 200,000.

If I calculate my return on investment, it's 1200/mo*12 months/yr = 14400 / 50000 (my investment) = 28.8%

Seems great! But in actuality, if I sold and could net 150k to reinvest elsewhere, that's really a return of 14400/150k = 9.6%.

Bottom line: at any given time you need to look at what your return on capital is, not return on investment.

I have houses that were giving me 9% when I bought them based on my down payment. Prices have risen, my equity has more than tripled (though the house overall obviously didn't triple, my equity did due to leverage), and now my return on what I could cash out is a paltry 3%. I'm looking to sell and redeploy that capital elsewhere in that case.

If Nord's house is appreciating, he may see his return dropping, if he is calculating it based on equity, rather than initial investment amount. (Which especially makes sense if you bought a long time ago, your return on investment may be over 100% if you only put a few thousand down and it returns more than that annually in cash flow, but what you should be looking at is what the return on equity is.)

(But yes, rising rents will increase your return, I agree with that. Appreciation outpacing it though may still mean a dropping return on equity.)

Hope that made sense! :)