The bad news: It’s unlikely that we will ever see homes appreciate the way we did leading up to 2006.
The good news: It’s likely home prices will eventually rise, albeit modestly, and your home could appreciate.
So what do you look for in a home when buying to increase the chances of appreciation?
Location, location, location! It’s a real estate cliché, but it makes sense once an investor understands the impact of land value on appreciation.
The reason that land is an appreciating asset is because of supply and demand. Land is in limited supply, and no one is producing any more. The demand for land is constantly growing as the population increases. The reality is that the physical structure will likely depreciate over time. With regard to appreciation, homebuyers should look past the physical attributes of the home and focus how its location in the market will affect overall return.
Other considerations regarding the location of a home that is more likely to appreciate: Is the home in a more private and desirable cul-de-sac or on a more frequently used street? What is the condition of the neighborhood? What is the proximity to recreation such as golf courses, parks, and colleges?
- Buy during the winter. Often, many sellers who choose to sell during the wintertime are looking to sell quickly. Also, many homes listed for sale in the winter are generally not new homes and may consequently have price reductions. You will have less competition during the winter because most people don’t want to move during cold months. If you buy your home during a time when there is less competition, the chance of appreciation will increase.
- Be mindful of potential future development. Future development can change your property’s value for better or worse. Be mindful of the present state of local amenities as well as the future prospects for commercial and governmental development. The demand for real estate is affected by the availability of jobs, the availability of land, proximity to shopping, schools, parks, churches, population changes, desirability of an area, crime levels, zoning changes, etc.
- Consider cost-effective improvements. Certain improvements can increase the value of your home. However, other improvements, dollar for dollar, produce a low return. Plan carefully and make improvements that result in the highest level of appreciation for the money that you spend. If you make too many costly improvements, you will likely not recover those costs when you sell. Adding a garage door can get you a higher return on your investment than some other upgrades. A wood deck or a minor kitchen remodel can recoup a higher percentage of their costs than major remodeling projects such as adding a wing to your home. Remodeling your basement or adding an attic bedroom can also generally get you a high return.
When asking yourself, “Will my home appreciate?” it’s important to look beyond the physical attributes of the home and focus on the potential for land appreciation. When buying a home, concentrate on properties that provide opportunities for improvement to enhance the value of the land. If you are interested in tracking appreciation, visit the site of the Office of Federal Housing Enterprise Oversight (http://www.fhfa.gov/), which allows you to check the housing appreciation in your area.
Troy Batson ~ Broker
Duke Warner Realty
1033 NW Newport Ave Bend, Oregon 97701
541.678.3725 or 541.382.8262
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