Understanding Forced Appreciation in Real Estate

Understanding Forced Appreciation in Real Estate

Excalibur Homes
Excalibur Homes

Understanding Forced Appreciation in Real Estate

Almost every real estate investor dreams of the same thing—investing in a property, seeing it increase in value, and selling it for more than they paid to make a profit. The problem is that waiting for an investment property to increase in value can take time if you’re not proactive. Fortunately, that’s where forced appreciation comes in. If you’re ready to increase your property’s value and asking price, let’s review what forced appreciation is in real estate.

What Is Forced Appreciation?

Forced appreciation is the active method of increasing your property’s value instead of waiting for the market to change and for the value of properties to rise. The investors force the appreciation by increasing the amount of money a property generates, also known as net operating income (NOI). To increase your NOI, you must either increase the property’s value, raise rent, or decrease property expenses. The idea is that the higher your NOI is, the better return you’ll receive.

How Can You Force the Appreciation of Your Investment Property?

You can use one technique or a combination of forced appreciation methods to increase your NOI. To increase property value, you can invest in home renovations. This can include but is not limited to adding a pool, adding a bedroom or bathroom, fixing the roof, redoing the exterior paint job, and installing a smart home security system.

Your next available method is to increase rent, which you can do more easily if you increase the property value. By raising rent, you naturally increase your NOI. However, you have to make sure that your rates remain reasonable because you may lose out on tenants if the rent is unreasonable, and vacancies can negatively impact your net operating income.

Lastly, you can decrease property expenses so that you spend less and keep more money in your pocket. Investing in energy-efficient utilities, LED bulbs, and smart home thermostats can help you decrease your energy bill. You can also install devices on showers, bathtubs, sinks, and toilets that regulate water usage to cut down on wasted water. However, the best way to decrease how much you spend on your property in the long run is to consistently maintain it.

What Are the Advantages and Disadvantages of Forced Appreciation?

Most obviously, the main advantages of forced appreciation are how quickly you can increase your property’s value and how much you can make. Forced appreciation reveals an easy way to ensure you get back more than your purchase price. Also, by not relying on natural appreciation, you get ahead of other competition in the area.

The biggest disadvantage of forced appreciation is how much effort it takes. You have to consistently stay on top of maintenance, compare rental prices, and invest more into your property. Plus, it’s not a guarantee that you can force appreciation for every property. Sometimes, there is no room for improvement if the previous owner already did what they could to force appreciation.

Now that you understand what forced appreciation is in real estate, let Excalibur Homes help you make more out of your investment. We’re a property management company that offers management and leasing services. With us, you can spend less time managing and maintaining your property and more time finding new ways to increase your property’s value.

Similar Articles