Forced Appreciation And How to Leverage it.
Appreciation in real estate refers to an increase in the value of a property. This could be brought about by a number of factors ranging from the influx of new residents to a neighborhood, to the development of new infrastructure and so on.
In its simplest form, all properties tend to experience some level of appreciation with time.
However, an investor can control the appreciation of a property. And this kind of appreciation is known as forced appreciation.
Forced appreciation occurs when a real estate investor proactively increases the value of a property. And this can be done in different ways.
An investor seeking to increase his rental income may renovate a property such that it has more rental spaces that generate more rental income. For instance, an oversized playroom could be converted into an additional bedroom.
Although location is a major player in influencing the capital value appreciation of a property, increasing the number of living rooms, bedrooms or extra spaces in a property could increase the capital value of such property.
Nonetheless, investors who wish to force capital value appreciation should focus on increasing the curb appeal of the property.
And one fantastic way of increasing the desirability of a property is to ensure a stellar interior finish.
The quality of interior finish could be the singular reason a property is valued more than another property of the same type and size in the same location.
Now, you are probably wondering how this applies to investors who are not willing to build and go through the hassles of overseeing a building project from scratch.
How can an investor who is focused on buying, holding and reselling properties leverage forced capital value appreciation in real estate?
The answer is simple: invest in semi-finished properties.
Semi-finished properties, as the name implies, refers to properties that have been completed – excluding the interior finishing.
This allows the investor the opportunity to determine the kind of interior finishing, thereby leveraging forced appreciation.
Another way that real estate investors can leverage forced appreciation is by investing in off-plan properties.
Off-plan properties are properties that investors subscribe to before they are built. And they are known to be one of the most profitable forms of real estate investments.
Investing in off-plan properties could be a great way to leverage forced appreciation in real estate, because investors have the opportunity to tweak the floor plan to accommodate extra spaces.
This is a sure way to increase both rental income and capital value.
Forced appreciation is a not-so-common method of maximizing the profitability of a property. And it is a method you can start implementing right away.
Especially when you can invest in off-plan properties and have them delivered at semi-finished.
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