Real estate appreciation is the process by which real estate acquires additional value over time. Properties naturally appreciate for a variety of reasons, including inflation and market conditions.
Most organic forms of appreciation take a substantial amount of time. In most markets, it’s estimated that properties appreciate at a rate of between 3 percent and 5 percent of their value each year. However, there are several tools savvy real estate investors can use to force the appreciation of their assets.
Learning how to force a property that you already own to rapidly appreciate can help you maximize the value of your investment, and free up capital to reinvest in other assets and endeavors.
Raising rent to force appreciation
One of the most common ways investors force appreciation is by raising rents. Unfortunately, raising rents tends to alienate tenants, and could ultimately reduce the passive income you’re capable of generating from your investment property.
Unnecessarily raising rents is often a short-term solution that could cause you to actually lose money! Instead, you should carefully and strategically raise your rents each year. Thankfully, there are other ways that you, as an investor, can force the appreciation of your property.
Forcing asset appreciation
Appreciating your property requires you to think about ways you could make your investment more appealing to other real estate investors. When your property is as desirable as possible, you can command a higher price when it comes time to list your asset on the market.
Appreciating your property requires you to pay attention to the small details you may otherwise be tempted to overlook. Something as small as keeping the baseboards in good shape or investing in routine landscaping services could help you improve the way other investors view your property.
Using a detail-oriented approach to real estate investment also allows you to command higher rents from your existing tenant base. Here are just a few steps you can take to force the appreciation of your rental property:
•Add services: While it may seem like a small gesture, installing a few small services at your property can significantly increase the value experienced by your residents. Consider installing laundry facilities, vending machines or offering cleaning services. These small services will make the property more appealing to renters, and subsequently, any future investors you may be attempting to sell your property to.
•Add facilities: If there’s any underutilized space on your property, think of ways you could leverage it to elevate the value of your real estate. For instance, you could install a covered area over your parking lot, which may help you command higher rents in the future. Additionally, you may be able to use underutilized space on your property to install a children’s play area, pet run or swimming pool, all of which will make your property more attractive moving forward.
•Cut down expenses: Maintaining a high-quality property with plenty of amenities isn’t enough to make it appealing to future investors. You also have to demonstrate that the numbers check out. Cutting down operational expenses can help you significantly appreciate the value of your rental property. Learning how to manage your own property—rather than working with a professional property manager—may be one way to cut down on your operational expenses.
•Levy additional fees: You should always be thinking about new ways you can use your existing tenant population to increase the value of your real estate. There are a number of one-time non-refundable fees you can charge residents to force the appreciation of your property. For instance, move-in fees, pet fees and late fees are all excellent ways to show other investors that your property is profitable. They also set a strict, no-nonsense tone for your tenants, which can help you avoid running into unexpected headaches and costs later on.
•Improve the property: Property improvements don’t have to mean building additions or wholesale renovations. In fact, property improvements may be something as small and simple as slapping on a new coat of paint. The key is, you should always be investing in property improvements, even if they’re relatively small endeavors. These consistent, small improvements will allow you to command higher rents and a higher sale price when it comes time to sell off your asset.
•Rent to good tenants: When selling your property to another investor, a major draw is having a stable, reliable tenant population. Your property instantly becomes more appealing if it’s filled with tenants who have been there for years with no incidents and on-time rent checks. Though they have nothing to do with the physical property itself, they’ll create perceived appreciation in the eyes of a savvy investor.
While real estate is generally always appreciating in value, there are some market conditions that may cause your property to depreciate. Working to force the appreciation of your property can help you ensure you’re able to command high rents and a high sale price, regardless of what happens in the market around you.
Don’t bank on appreciation
It’s important that appreciation is never at the core of your investment strategy. Some investors, particularly in cities with high costs of living, may charge lower rents, with the expectation that they’ll be able to eventually leverage a high sale price that will offset the losses they experienced while renting the property out. This is a faulty strategy; if a property isn’t generating a high amount of passive income, it’s unlikely you’ll be able to command a high price from other investors, regardless of the state of your local market.
Elevating the amount of passive income that you derive from your rental property should remain the core of your real estate investment strategy. Forcing the appreciation of your property is a great way to maximize your real estate investment. Slightly increasing the amount of income generated by your property can significantly force its appreciation and make it substantially more appealing to other investors when the time comes to sell.
Get advice from your network
Interested in learning more about forced appreciation? Your local investing network is a wealth of untapped potential! Consult with other investors in your area to learn more about regionally-specific improvements you can make to your property, like seismic retrofitting, that may help you accelerate the appreciation of your investment.