Real estate appreciation is seen by many real estate investors as one of the most exciting ways to create and increase financial wealth. There is an option for real estate appreciation to occur the natural way. However, you can increase the value of your income property with forced appreciation, if you manage your income property the right way! So increasing the property value in the real estate market is one of the ways of becoming rich in the real estate investing business. However, what is natural appreciation as well as forced appreciation? We will answer this as well as explore how to force appreciation on your income property. Keep on reading to find the answers about real estate appreciation.
#1 What Is Real Estate Appreciation?
Before rushing into the steps of forced appreciation, let’s explore what appreciation is exactly and what its relation to the present/ future value of the income property is.
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Natural Appreciation of an Income Property
Market or natural appreciation is basically an increase in the value of a real estate investor’s rental property because of the alterations that appear in the real estate market. However, when does it happen? Well, typically, such an increase in the present value can happen when the supply cannot handle the demand on the current housing market. Besides that, inflation or changes in the interest rate can result in natural appreciation.
Let’s explore one example of natural appreciation. Imagine that a new business center is opening close to the location of your investment property. Therefore, there will be a higher rental demand from professionals. This will result in the natural appreciation of your income property. However, if the business center fails, many potential tenants will move toward other opportunities. Consequently, demand for rental income properties will drastically decrease. This will lead to depreciation. Ready to learn more about real estate appreciation? Make sure to read “6 Things to Know About Real Estate Appreciation.”
Natural appreciation cannot be controlled by the real estate investor. Yet, if the real estate investor desires to increase the present value of his/ her rental property, the success of the investment property will come through forced appreciation.
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Forced Appreciation of an Income Property
Forced appreciation means that the real estate investor is the one who takes action in order to make the property value increase. In other words, the appreciation of real estate investments is not influenced by uncontrollable real estate market forces. The real estate investor is the one who is proactively engaged in the income properties’ condition. Thus, he/she makes a straightforward impact on the forced appreciation of an income property. Interested to learn more about forced appreciation? Make sure to read “The Best Tips for Forced Appreciation in Real Estate Investing.”
#2 Do the Analysis Before Forcing Real Estate Appreciation
In order to force appreciation like a pro, the real estate investor should have certain information about the housing market as well as the income property.
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Real Estate Market Analysis
When conducting real estate market analysis, the investor will be able to have the full overview of the housing market. For instance, due to analyzing the real estate comps, the investor will be able to determine the property price of the investment he/she owns. Knowing the property price will also help when selling your investment property. Additionally, with such an analysis, the real estate investors will stop asking themselves “How much should I charge for rent?” and will know the answer right away. Consequently, when having the results of the analysis, the investor will know how to proceed with trying to force appreciation for his/ her investments.
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Investment Property Analysis
Investment property analysis is the second step the real estate investor should consider when planning to force appreciation of an income property. Investment property analysis is used to collect information about the current performance of the income property. You will know the expenses your income property generates. Moreover, you will know all the real estate metrics you need to measure performance. This information is used to develop an action plan in order to force appreciation like a pro once the housing market analysis is complete. Interested in how to do investment property analysis? Make sure to read “How To Do Investment Property Analysis.”
#3 Tips for Forcing Investment Property Appreciation
Whether you are the seller or a buyer, you should always get the best from the real estate properties. On one hand, when selling your investment property, you should know how to increase the present value of your income properties to get high profits. On the other hand, the buyer should know how to force appreciation of income properties so the future value would reach the set goal. In the end, the main goal of the real estate investing business is to make money either through selling your investment property or renting it out.
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How to Force Appreciation: Provide More Living Space in Your Rental Property
People love having a garage. Yet, tenants would pay more for an extra living space. Increasing the living space in your income property will consequently increase its present value. However, you should invest a certain amount of money to make it the right way. For example, your attic or basement can be converted into cozy rooms. Consequently, with more living space, the real estate investor will increase the monthly rent as well as rental income. Moreover, not only will the rental income be higher, but also the value of your income property will grow.
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How to Force Appreciation: First Impression of Your Real Estate Investment Property Matters
Want to succeed in the real estate investing business? Remember that, people rent or buy according to their emotions. Therefore, your task is to make your buyer or tenant fall in love with your real estate property from the first second. Make sure that outside aesthetics are as attractive as the interior design of your real estate investment. This will certainly increase the price of your investment property.
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How to Force Appreciation: Provide More Bathrooms in Your Rental Property
Nowadays, potential tenants or buyers are looking for more than one bathroom. Consequently, the property value will increase when the landlord/seller adds an extra bathroom. The investor should know that the location of real estate properties is not the only aspect that is being evaluated, but also the features that the real estate investing property has. For example, the property value increases automatically when the seller adds an additional bedroom or bathroom. Therefore, the seller may set a higher property price.
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How to Force Appreciation: Add Extras, Which Will Last Long
Instead of investing in décor and furniture, try to create extras in your property which will last for generations. A playground in the backyard or a pool would significantly increase the value of your property. Also, they will last over time. Think about creating a garden, relaxation zone, or simply a patio. All these additions will make your property more competitive and desired by either tenants or buyers.
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