Forced appreciation is not a new concept when it comes to real estate investing. It is a strategy used by the real estate investors to increase the value of a commercial property. As a matter of fact, the investors in the current scenario are already au courant with its concept and the associated financial rewards.
It is a universal fact that the value of an investment property is based on the income that it generates. If you can increase the income from a property, you can increase its importance in the long run. This is where the forced appreciation comes into play. However, for those who are still unaware of the terminology, an appreciation in real estate refers to an increase in the value of a property over a period. It can either be natural or forced. Without any further introduction, let us now dig deeper into the subject.
Natural Appreciation vs Forced Appreciation
An increase in the value of your real estate investment due to changes in the property market is referred to as natural appreciation. It occurs when the demand for properties outweighs the available supply. Changes in the interest rate and inflation are the other major factors which significantly contribute towards the capital appreciation of your property.
A real estate investor has no control over the impact of natural appreciation on an investment property. However, the returns from the property can be augmented through forced appreciation which refers to an increase in the value of the asset due to investor actions. This type of appreciation is not affected by the unrestrained market forces, and it is the investor who, through proactive measures, can have an impact on the appreciation of the property value.
Tips for Forced Appreciation
Forced Appreciation can occur anytime by adding amenities to a property, doing capital enhancements and raising the rental value of the residential premises over a period of time. A decrease in expenses can also help the property value to rise significantly in the long run. Here are a few tips to help you reap exponential benefits out of the residential investments:
1. Increase monthly rent:
An increase in the monthly rent can significantly add up to the income from the property. Never let out the premises on erstwhile prices. However, before raising the rent, you must carefully analyse the rent prices of the similar neighbouring properties, and make sure that the price you ask is reasonable. This, in turn, will make sure that your property does not remain vacant for long.
2. Provide more living space:
Rental properties with extra living space often attract higher monthly rent. You can opt for building up a deck or converting an attic or the basement into rooms. A significant addition to the living space is something that the buyers tend to notice.
3. Work on the exteriors:
Work towards enhancing the extrinsic beauty of the property. Healthy trees, beautiful flowers, neatly trimmed lawns and beautifully painted walls tend to attract a large number of eyeballs. People are generally willing to pay more for a property that is appealing to the eye.
4. Add extras to the property:
An extra washroom or an extra bedroom enhances the desirability quotient of a residential property. Many are in quest of an additional washroom or maybe a spare bedroom as compared to similar other properties in the surrounding areas. A parking area inside the premises can also be a great way to enhance the rental value.
5. Decrease the expenses:
The investors who efficiently manage the energy usage of their properties tend to reduce the expenses significantly as compared to those who do not. Using LED Bulbs, putting thermostats, and installing sensors are some of the great ways to cut down energy costs and increase financial profits.
Forced appreciation may initially seem to be a daunting task, but it is hugely advantageous when done correctly. Not only does it play a significant role in bolstering the gains from an investment property but will also help to increase its value over some time.