Appreciation is the aspect that earns real estate its brownie points declaring it a solid investment over others. The ability to increase net worth via appreciation is the primary reason people prefer to invest in property. To put it in simple words, appreciation is used to refer to the increase in the value of property. This increase can be market determined as well as individually fixed. However, in most cases, it is the first that has the main say.
Thus, every real estate investor should have a sound understanding of the factors that influence the value of real estate. It enables one to make more profitable investment decisions. This article looks at the different factors that cause a property to appreciate in value; Inflation, capital improvements and the supply-demand factors are to name a few.
Inflation
A home that costs a $150,000 today is likely to cost twice the amount 5-10 years from now. This price increase in the value of property is the result of inflation. Inflation is a period marked by an increase in the supply of money in the economy. An increase in the amount of money in circulation leads to the devaluation of currency. Inflation leads to an increase in the retail prices and hence, you automatically pay more today than what you paid 10 years ago.
Although inflation causes an increase in the value of property and brings in more than what you paid for it at the time of its purchase, most critics don’t regard it as a true increase in the value of property; it is only looked upon as the an adjustment to inflation.
Capital Improvements
This is what real estate experts regard as a true appreciation in the value of property. It involves making cost-effective improvements to the property. It could be as simple as a fresh coat of paint, replacing an old roof, better carpeting or landscaping. Capital improvements can increase the value of personal residences and income property. When considering improvements to the home, you should plan carefully. You should consider small, important and cost-effective improvements that will achieve the highest level of appreciation. Avoid very expensive improvements as it might be difficult to recover the costs when you list the house on the market.
Supply and Demand for Homes
The supply and home demand in a particular location also influences the price of undeveloped land, residential and commercial properties. A high demand location with a limited supply automatically increases the value of properties. On the contrary, an oversupply will cause a significant drop in the value of properties. The demand for real estate varies according to the state. It is also determined by the level of employment, the availability of land, the rate of interest, property tax rates, infrastructure facilities, zoning regulations, crime rates and other general economic factors. When it comes to infrastructure, it includes basic amenities such as good roads, proximity to schools and hospitals as well as the presence of recreation facilities such as parks and shopping centers.
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