Every property commands a certain value, which appreciates with the growth in the market. This value is based on criteria, such as the location of the property, its configuration, the building construction and last but not the least, the rental yield it is associated with. However, there is another factor that helps in the growth of property value – forced appreciation. As the name suggests, unlike natural means, this method is often used to forcefully escalate the value of a property. Read on to understand what is forced appreciation.
Forced appreciation definition
Natural appreciation happens when the demand-supply ratio is not maintained. When the demand is more than the supply, it paves way for cost appreciation and this holds true for the real estate sector, as well. Here, the property owner or the investor has no control over the increase in the property’s value and it solely depends on market conditions. Contrary to this, forced appreciation happens when the property owner or the investor, through induced actions, changes the course of the property growth and leads to its appreciation. For forced appreciation, the investor or property owner can either increase his rentals that will increase the value or increase the value of the property, which will increase the rental, or do both. An investor or property owner is solely responsible for the actions taken to receive heavy returns from a property.
See also: Factors that cause property price appreciation
Forced appreciation real estate : Advantages
Forced appreciation is one of the easiest ways to ensure constant cash flow while escalating the value of a property. Also, as this is not natural appreciation, the competition with other real estate investors will be minimal.
Forced appreciation real estate: Disadvantages
It is important to know that not all properties can be subjected to forced appreciation. While the money generated is big, it also requires effort like constant market monitoring and having a USP that commands extra money. To command a premium for a property, one may require the help of expert property consultants like Housing.com. Due to the huge amount of money involved, it is mostly a one-time advantage. If one has already explored forced appreciation, it is difficult to exercise it again within a short frame of time.
Forced appreciation tips to follow
Mentioned below are some tips that investors can follow for forced appreciation:
- Hike the rent: While monitoring the market rent value, if you can increase the rent of your property, it is one way of generating income from the property you own, thus, resulting in forced appreciation. However, this method is effective when the property has something extra to offer – like a furnished flat – that justifies the premium. This forced appreciation is effective only if the property has not been vacant (without tenants) for a long time
- More for more: Providing more things for more income is a good idea when it comes to forced appreciation. Any additional fixtures or space automatically increases the value of the property. Thus, providing that extra bedroom, basement or even another washroom, adds great value in terms of lifestyle experience and is a good way to implement forced appreciation.
See also: Everything you need to know about rent agreements
FAQs
Does forced appreciation work in the same way as natural appreciation?
As it is in an investor-induced activity, forced appreciation does not have the same growth as that of natural appreciation.
What is crucial for forced appreciation to be a success?
A good amount of effort is required to identify the ways in which a property can be packaged to be made worthy of forced appreciation.
With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: [email protected]
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