Don’t Count On Appreciation
By Paul Esajian on August 30, 2013
There are a lot of different strategies and approaches to making money in real estate. The most successful investors know they should never count on guaranteed appreciation when they are running their numbers. Any appreciation should be viewed as a bonus or a byproduct of some value that they add to the property. This could be done from doing work or from buying in the right location and at the right time. Simply buying low and hoping that value will just come without doing anything is the surest way to lose money quickly in real estate.
There was a point in the last decade when you could buy almost any property and within a year or two see a 10-30% increase in value without doing much of anything. Those days are long gone and part of the reason many investors were forced out of the business. They banked on appreciation to occur. When that didn’t happen and values went the other way, they were left with an upside down property not bringing in any money. They could not sell at this point and they could no longer borrow against it.
In today’s market there are still many good property buys that can yield quick appreciation. Most of these deals are predicated on the fact that you can buy low enough. While the market is recovering, it is still moving at a slow pace. Any gains have been small and very incremental. This is the way property values should grow, except for times of abnormal growth or decline.
The average property will appreciate anywhere from 1-5% in a normal year. This will certainly not get you your money back quickly if you are looking to sell in the short term. Your value may rise quicker, but it will be from the work you put in. You need money to make money in a typical rehab. Appreciation may happen but don’t rely on it.