Real estate appreciation is the increase in the value of a property over time. The annual appreciation of your investment property is a key variable when calculating the return on investment, and a property’s appreciation value can increase in two different ways. It can increase through natural appreciation or forced appreciation. How are they different?
Real estate properties appreciate and depreciate naturally with the ebb and flow of the market, as well as with developments in their surroundings. These are factors that are mostly outside of the control of the investor. For example, a property may appreciate naturally over some time due to inflation, due to the influx of businesses, or the placement of a new university. If there is a lack of supply in the type of property that you can uniquely offer, then it would lead to an increase in value. A real estate investor can pay attention and take advantage of these natural appreciators but has very little control over them.
Forced appreciation, on the other hand, lies outside market forces and is very much in the power of the property investor. It refers to changes that a property investor may make to their property as a way to increase value, as well as changes to decrease the expenses of that property. Put another way, increasing your property’s value means having NOI, or net operating income, which is used to calculate the profit of an investment property after necessary operating expenses. Here are some ways to help appreciate your residential property.
- Keep it rented. Not only can you do this by keeping a reasonable rental price, but you can be more active in promoting your property. Create an attractive ad and promote it in as many places as possible, especially on the internet and with appropriate online groups wherever your ad may receive the most traction.
- Raise the rent strategically. Just because you want to keep a reasonable rental price doesn’t mean you can’t update it periodically based on the surrounding developments. To find the sweet spot, look at the pricing of your competitors and stay within a reasonable range of surrounding prices.
- Increase the living space. If possible, consider remodeling or converting any unused space on the property, such as a basement or attic into more living space. Keep a reasonable budget for the project, and then increase the rent according to the increased space.
- Add more rooms. Not only is the value of a property considered through the amount of space, but also by the number and types of rooms. Adding an extra room (such as a bathroom) can make your property more attractive to prospective renters and drive up value.
- Add extra features to your property. This is an especially useful way to increase value for a multifamily property. Adding a single feature such as a laundry space or access to a yard or parking would be a plus for the entire property, and would increase value on each unit.
- Make it a vacation rental. Shorter-term rentals can go for higher rents than longer-term contracts, so this could be a more lucrative option. However, it is important to be sure that your property can work as an Airbnb rental, and then find out if there is a market for Airbnb rentals in your area. Also, make sure to follow laws in your area regarding renting out an Airbnb.
- Improve the first impression. Looks matter, and it will benefit you to put more effort into making sure that your properties stay looking neat. This will make the property more attractive to renters.
- Manage energy usage. You can make small changes to better manage the energy usage on your property. These updates could include switching out old bulbs for LED lights, installing sensors on the heating system, or installing devices to help regulate water usage in showers and toilets. These measures can reduce unnecessary water usage, cut energy costs, and, ultimately, help your property appreciate.
- Maintain meticulously. Make sure to keep properties in the best possible condition and to repair issues as soon as possible. Even small problems left unfixed can lead to bigger and more expensive problems. It can also be good to negotiate prices with service providers and build a consistent relationship that could help reduce costs of repairs and upkeep in the long term.
Forced appreciation takes time and resources, but it can also make for long-term improvements in your investments.
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