Forced and Market Appreciation

Today we are going to talk about something very important to investing in real estate—appreciation. Appreciation is the rise in value or price, of your real estate investment.  When you are flipping houses, the property can appreciate (or not) via Forced Appreciation and/or Market Appreciation.  Not understanding how both of these forces are working can turn your LLC into a 501C. So let’s look at forced and market appreciation.

Forced Appreciation occurs when the value of the property increases as a direct result from actions taken by you as the real estate investor.  This is fundamental to flipping houses where you purchase a property that is under market value and complete repairs or upgrades that increase the home’s value.  Sometimes the smallest change can add appreciation to your investment.  Painting a home is almost always one of the best returns you can get when investing in real estate.  The overall goal is to complete the required amount of work especially in the hot spots, but not to over improve the home.

Market Appreciation is a powerful market force that must be accounted for when investing in real estate.  This type of appreciation occurs due to the activities of other buyers and sellers and cannot be controlled by you as the investor.  Market appreciation is hyper-local.  So, it is important to understand the factors that affect your particular city and not get caught up with ‘national’ news.  As an example, the coastal areas tend to swing more wildly than the Midwest.  Just because Miami properties are appreciating at 10% doesn’t mean that the same is true in Tulsa.  For now, Lebron has the edge over Durant here as well.

Of the two, Market Appreciation is both the most important and most overlooked.  In the early 2000’s almost everyone flipping houses in California made money no matter how incompetent they were.  One TV show even had a guy who took the dirty carpet from his apartment and put it in the rehab property.  In the late 2000’s these types of people stopped investing in real estate as they lost the ability to sell their homes.

Obviously, the most profitable time to be flipping houses is when you both types of appreciation are working in your favor.  This is your golden ticket.  In most areas of the country, this is the current situation.  If you’ve been waiting for the right time to get started, it is now.

To lean more about today’s topic check out this link at- http://en.wikipedia.org/wiki/Real_estate_entrepreneur

To learn more about Part-Time REI visit us at http://part-timerei.com/

Or visit us on FB at: https://www.facebook.com/PartTimeRei

Linked In http://www.linkedin.com/company/part-time-rei