Introduction to Home Appreciation
When you purchase a home, you will always expect the home value to go up. In most cases it does.
However, there might be some instances where the home values do not appreciate and could create a sense of loss if you want to sell the property now.
In this post, we will understand what does home appreciation means, how to calculate home appreciation, and other details about real estate appreciation.
What Does A Home Appreciation Mean?
A home appreciation means an increase in the value of a real estate property over time.
When a value of a house is increased, the owner benefits at the time the property is for sale or when it comes to renting the property where the owner can raise the rent amount by a certain amount and gain profit.
What are the Types of Home Appreciation?
So real home appreciation happens when the property’s value increases over time. There are two ways in real estate that this could be done.
The first one is a Natural home appreciation, and the second is a forced home appreciation.
Natural home appreciation is when the home’s value increases over time due to the local market that it is in and the national market that it is in.
In this type of home appreciation, the property values increase because of changes in the lifestyle in that area and building better communities for people to live in.
For example, if you bought a home in 2012 for $100,000 which was a very basic area, however, now there are more schools built-in, more public gardens, shopping malls, and many other resources that were added in the community making the mare more habitable for people to live in.
In such case, the property value will get a natural home appreciation may be in today’s market it the same home could be $200,000.
Finding homes where you might get natural home appreciation is a little bit more of a bet or speculation than possible cash flow.
So guessing the amount of natural house appreciation that would be after 10,15, or 20 years would be difficult as you cannot foresee the future.
There is a list of things that you can look for in a city that hint at the fact that there might be some sort of natural home appreciation.
Things move a little slower in real estate than they do in the stock market so they would not change overnight, however, they do change over years.
Forced home appreciation is so much better than natural home appreciation. It gives you something that you can control.
What a force home appreciation allows you to do is to improve a property by adding something to it or by fixing something up and that increases the home’s value directly.
To determine that if you are going to be able to force appreciate your property you first need to look at homes that are similar in size, have similar bedrooms, bathrooms and have similar amenities like the one you own.
The next thing to do is to know what price these homes are selling for.
The next thing to do is to make a note of things that their house has that your home doesn’t, and then see if you can add those things to your home and would be able to increase the value of your home in comparison to what the other home is worth.
How to Calculate Home Appreciation?
So for calculation purposes let us take an example. If you have purchased a property that was worth $215,000, and now the natural appreciated value is $250,000.
This means your property has gained a natural home appreciation value of $35,000. Home appreciation is most of the time calculated in percentage.
To calculate the percent of appreciation, you have to take the new difference of the appreciated value and divide it with the original purchase price and then multiply by 100.
Considering our example 35000/215000×100 which equals 16.27%. This means your property has appreciated by 16.27% from the time you have bought it.
Conclusion
You need to keep knowledge on how your property is being appreciated. If you think that your area is not getting as much home appreciation as other cities, you can be more proactive and make sure that you do some remodeling and add up a few things to your house.
When you are selling the home, at least the additions and remodeling that you have done could help you increase your home’s value.
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