Real estate is one of the safest asset classes for building wealth over time. Real estate provides many benefits, including stability, tax advantages, and homeownership perks.
This article discusses aspects of appreciation, and how to use it to your advantage.
What is Appreciation?
Appreciation is the increase in the value of an asset over time, and it doesn’t only apply to real estate. Other assets that increase over time are investments in the stock market, oil, gold, and many more.
Appreciation in real estate occurs alongside positive economic growth. Fundamental factors like falling interest rates, decreased supply, increased demand, or rising inflation can cause appreciation.
“Forced appreciation” is another sound strategy for increasing the value of your property investment. Converting a dining room to a bedroom or adding a bathroom to your apartment can increase desirability to potential buyers, or put your property in front of buyers who are shopping for bigger apartments at higher price points, which will raise the value of your investment over time.
Appreciation vs. Depreciation
Depreciation is the opposite of appreciation and happens when the value of an asset decreases. Cars, boats, or electronics depreciate. They lose their value through wear and tear.
Real estate investments can depreciate as well. Factors like market conditions and trends are out of your hands, and there’s little you can do to prevent these types of depreciation. However, regular maintenance and upkeep, along with choosing the right location for your home, is the best way to counter depreciation.
How to Maximize Appreciation
Maximizing appreciation is a primary objective of real estate investors in New York City.
- Choose the right location. Choosing a home near good schools, shopping districts, social activities, and green spaces will generally appreciate faster than homes in areas without these attributes.
- Improve your home over time. If your kitchen, bathroom, or floors are outdated, renovate! Market-friendly improvements can and do increase the value of your property.
Most of the reasons why homes depreciate are due to outside factors like market and/or economic conditions. Be proactive about minimizing depreciation by mindfully maintaining and strategically updating your property. Updating your appliances and finishes are well-established strategies for staving off depreciation.
The Bottom Line
There are plenty of ways that you can take advantage of the appreciation of your property investment. While there are no guarantees to the amount you can expect your home to appreciate over time, buying in a desirable location with low crime rates and good schools is a great way to ensure that the value of your well-maintained and up-to-date apartment will increase when it comes time to sell a few years down the road.