How Does Appreciation Affect My Real Estate Investment?
It’s going to be important to understand the various factors in answering how does appreciation affect my real estate investment? Appreciation can help make you money overtime in your real estate investments, but it isn’t what I base my investments on. The investments methods I teach are for properties sold fast enough or held long enough that appreciation will not make or break the deal.
Appreciation is something that will generally happen no matter what, unless there is a setback, like in 2007-2008. Even then, it is likely to get back on track. Understanding how appreciation works is important for anyone in the real estate industry.
What is Appreciation?
The increase of the value of a property over time is appreciation. There are many ways a house can appreciate in value.
Home improvements that might increase the value of a house include a new roof, bathroom upgrade, addition of living space, and other major renovations.
The rate for appreciation resulting from inflation in the United States ranges from 3% to 5%. That means, with normal conditions, you have potential to make money every year you hold onto a property. This is helpful when you do a subject-to deal where you keep the seller’s loan in place, but you take ownership.
Growth in the local economy
As a local economy improves or declines, the appreciation of real estate values usually follows.
Many things impact the local economy like new businesses creating new jobs, a large company moving out of the area taking residents with it, and other factors that change how many people desire to live in the area. As the local economy grows, real estate values will go up.
The cost of borrowing money
Appreciation also happens when money is “cheap” to borrow. This happens when mortgage interest rates are low and more people are able to buy homes. When more people buy homes, the value of properties goes up.
So, while appreciation shouldn’t be what you base your real estate investments on, it is something that can make you money in the long run.
To help you learn more about real estate investing and exactly how I became a multi-million dollar investor I invite you to join me at my next live event. You can also start your journey with access to my free Investor Kit.