Real estate investing is seldom for the fun of it. Hey, when you want fun, you take the family to Disney World, certainly not to help you resolve a tenant problem in one of your apartment buildings. Real estate investing is about making money, and the reason you purchased that rental property in the first place was to make a lot of it. It seems appropriate, therefore, to consider at least six reasons why rental property values do go up. If you’ve been struggling to make money on your real estate investment, this one’s for you.
- Inflation. Inflation increases rental property value simply because of the increased cost to replace the property. The increased cost of land, building permits and fees, materials, or actual construction.
- Improved infrastructure. The effect due to development around the property is perhaps the most predictable. Roads, electricity, water, and sewer sytems, police and fire protection, parks, hospitals, and so on have a major effect on the value of property.
- Economic conversion. When the use of a property changes. For example, when new zoning laws allow you to convert a small apartment building to offices; a single-family home into a four apartments.
- Increased bottom line. It goes without saying that real estate investors buy a rental property’s cash flow (bottom line). Assuming other factors don’t change, an investor who is able to increase the bottom line (cash flow) will increase the resale value of an income property.
- Capital improvements. Unless the value of the land makes capital improvements superfluous, adding extra apartments to a building, or an extra bedroom or bathroom when the market demands it, can increase value.
- Supply and demand. The shortage of available rental property at a time when the demand for rental income property is high drives rental property values up. It’s not to be viewed as a national statistic (i.e., what’s happening in California may not influence Florida), so its important to pay close attention to the local market. But when when your town or region has room to absorb more, and investors are there to buy, your rental property value will increase.
