Home appreciation serves as a crucial metric in real estate investing, potentially becoming a substantial wealth source for you as well. To make the most of your real estate investment, it's essential to understand how to calculate property appreciation.
However, this process involves more than just plugging fixed numbers into a formula; there are several key factors you need to take into account.
Key Factors Affecting Home Appreciation
Location
The property's value can depend on where it is built. This is determined by sub-factors like proximity to amenities, low crime rates, and overall aesthetics.
The home's value can increase significantly if there are plans for new infrastructure, commercial developments, or improved amenities in the area. Look for negative influences as well, such as proximity to busy roads, which can lead to loud surroundings.
Housing Market Conditions
Demand in the housing market is a fundamental determinant of an investment property's appreciation rate. Low inventory paired with high demand can contribute to home appreciation.
This may pose a disadvantage for buyers, as they must pay a steep price upfront for a property that could appreciate in value.
Economy
Economic factors can also affect the final value of real estate. This can be more challenging to navigate, so it's best to consult real estate professionals for the data needed to make an informed decision.
Influencing economic factors include:
- Interest Rates: Lower interest rates can push prices up and increase buyer demand. Higher interest rates can reduce demand and make it harder for you to make your mortgage payments.
- Inflation: Inflation is both a positive and a negative aspect in real estate appreciation. On one hand, you'll find more real estate investors buying properties to hedge against inflation. On the other hand, it can increase interest rates and deter buyers from purchasing the property.
- Economic Growth: If the local economy is thriving, the property's appreciation rate can increase. This means job growth and a lower cost of living.
Property Maintenance
The future value of your investment property will also depend on how well you maintain it or whether you upgrade its features. A home will sell more easily in the real estate market if buyers believe that they can comfortably live there without having to pay for repairs once they acquire the property.
Average Appreciation Rate
Home appreciation varies from location to location. The average home appreciation rate in the US is around 2-3%. However, Austin, TX, has seen higher appreciation rates in the last few years, making it a prime location for real estate investments.
How is Home Appreciation Calculated?
Formula for Home Appreciation
You can calculate home appreciation by comparing the real estate property's current market value to its initial value. The outcome will be a percentage showing how much the property's value has grown. The formula to calculate home appreciation is as follows:
- (Current Value - Previous Value) / Previous Value x 100
It's also important to learn how much a home's value will increase over time, as this will determine how much you can profit by selling your real estate. While you will only get an estimation at best, knowing the potential future appreciation is still better. To find the future value after house appreciation, use the formula below:
- Home value x (1 + Annual Rate) x Years
Home Appreciation Calculator
A home appreciation calculator is a useful tool for calculating your home's value without manually using the appreciation formula. Of course, you will still need to input specific data, such as the property's value, appreciation rate, and the number of years before you sell it.
If you're unsure about the variables, you can consult credible sources, such as the Federal Housing Finance Agency, which provides a four-quarter appreciation map per state. You can also consult a real estate agent or property manager to crunch the numbers for you.
Home Appreciation FAQs
What is a good home appreciation rate?
- It will depend on the investor and the market, but anything above the average annual appreciation rate, which is 2-3%, can be considered good.
How to find the best property to purchase?
- Utilizing a Comparative Market Analysis lets you determine which properties are of the best value for your investment. If you're unsure how to do that, you can always consult experts like real estate agents or property managers.
Is home appreciation taxable?
- There is no capital gains tax in Texas, so you won't be taxed while you own the property and when you decide to sell it.
How often should I maintain my property?
- As mentioned before, the home's value will also depend on how well you maintain it. To find issues early on and address them immediately, you should inspect it at least semi-annually.
How can I increase home appreciation?
- Other than regular maintenance, you can increase the property's price by upgrading it through strategic improvements.
What can affect property appreciation?
- Many things can affect it, such as market shifts. If other homeowners decide to sell their property at a competitive price, for instance, the appreciation of your own property could be affected.
With the Expert Help of Property Managers
Investing in a rental property is only the first step to making it profitable and allowing it to appreciate in value. While being a DIY landlord can get the job done, professionals can be more efficient with the resources they have and the connections they have access to.
Austin Property Management specializes in optimizing the rental value of your property, gaining crucial insight into the current market conditions, and determining your cash flow from the monthly rental value. With such services, you'll get more than your initial cost in no time.
Our company can assist you with:
- Marketing
- Tenant Screening
- Maintenance
- Rent Collection
- Accounting
- Eviction
With full-service property management from us, you won’t have to lift a finger and still earn rental income steadily. Want to learn more? We are more than happy to discuss how we can benefit you and your business.
You can schedule a free consultation with us for inquiries!