In real estate, there are two main things that people look at to determine whether or not a property is a good investment: the amount of rental income the property can produce and how much the property will appreciate in the future. While rental income is essential, appreciation is often seen as more valuable since it means you can make money without doing anything.
This article will go over what appreciation is, why it matters, and how you can maximize your profits from it.
What You Need to Know About Appreciation?
First, let’s define what appreciation is. Appreciation refers to the increase of an asset’s value over time. This means that if you purchased a home for $200,000 and sold it ten years later for $300,000, then the price of the house has appreciated by 100% (aka doubled).
There is no universal appreciation percentage since there are several different ways that property values can go up or down. Instead, it’s more important to look at the value as a percentage increase over the original purchase price versus how many years you own the home.
Why is appreciation important?
Appreciation in real estate is significant, because it means that you can make money without doing anything.
This is different from rental income, which requires you to either lease the property out or rent it out by using a property management company. But, of course, appreciation is not guaranteed since some factors can affect property values.
What makes up property value appreciation?
Three main parts contribute to property value appreciation: general market conditions, location, and the specific property itself.
General Market Conditions: These include interest rates, employment statistics, housing supply, and demand. For example, if new jobs are being created every day in a city, it will have a higher demand for housing which usually leads to higher prices.
Location: Location plays a significant role in all three market conditions and includes things like nearby schools, crime rates, and shopping centers.
Specific Property: Of course, the particular property also matters since it’s usually made up of marketable features such as square footage, number of bedrooms and bathrooms, and amenities.
What does this mean for you?
If you’re thinking about buying a home to make money, make sure you do your research first. You should know as much as possible about each aspect of the general market conditions, location, and property itself before considering buying a home.
Bottom-Line
Appreciation in real estate is significant, because it means that you can make money without doing anything! However, since many factors contribute to appreciation, make sure you do your research and know as much as possible before considering buying a home.
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