Mentioned in this article are the details of forced appreciation, a method often used to increase the value of a property
Every property commands a certain value, which appreciates by the growth in the market. This value is based on criteria, such as the location of the property, its configuration, the building construction, and last but not the least, the rental yield it is associated with. However, there is another factor that helps in the growth of property value – forced appreciation. As the name suggests, unlike natural means, this method is often used to forcefully escalate the value of a property. Read on to understand what is forced appreciation.
Forced appreciation definition
Natural appreciation happens when the demand-supply ratio is not maintained. When the demand is more than the supply, it paves way for cost appreciation and this holds true for the real estate sector, as well. Here, the property owner or the investor has no control over the increase in the property’s value and it solely depends on market conditions. Contrary to this, forced appreciation happens when the property owner or the investor, through induced actions, changes the course of the property growth and leads to its appreciation. For forced appreciation, the investor or property owner can either increase his rentals that will increase the value, or increase the value of the property, which will increase the rental, or do both. An investor or property owner is solely responsible for the actions taken to receive heavy returns from a property.
Forced appreciation real estate: Advantages
Forced appreciation is one of the easiest ways to ensure constant cash flow while escalating the value of a property. Also, as this is not a natural appreciation, the competition with other real estate investors will be minimal.
Forced appreciation real estate: Disadvantages
It is important to know that not all properties can be subjected to forced appreciation. While the money generated is big, it also requires effort like constant market monitoring and having a USP that commands extra money. To command a premium for a property, one may require the help of expert property consultants like Housing.com. Due to the huge amount of money involved, it is mostly a one-time advantage. If one has already explored forced appreciation, it is difficult to exercise it again within a short frame of time.
Forced appreciation tips to follow
Mentioned below are some tips that investors can follow for forced appreciation:
- Hike the rent: While monitoring the market rent value, if you can increase the rent of your property, it is one way of generating income from the property you own, thus, resulting in forced appreciation. However, this method is effective when the property has something extra to offer – like a furnished flat – that justifies the premium. This forced appreciation is effective only if the property has not been vacant (without tenants) for a long time
- More for more: Providing more things for more income is a good idea when it comes to forced appreciation. Any additional fixtures or space automatically increases the value of the property. Thus, providing that extra bedroom, basement, or even another washroom, adds great value in terms of lifestyle experience and is a good way to implement forced appreciation.
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