Many first-time homeowners and experienced real estate investors seem to focus on the functionality and style of their proposed purchases, expecting these characteristics to lead to increased property value. Many fail to remember the slogan of the real estate industry - "location, location, location" - when trying to find the property that will lead to the greatest investment performance.
The reality is that the physical structure actually depreciates over time. It is the land underneath the structure that appreciates in value. This is a significant distinction, considering that the purchase of a home is the single greatest investment that most retail investors will make in their lifetimes. Failing to look at one's home as an investment and understand the drivers of value, or concentrating on functionality and accommodation, can limit the property's overall performance and opportunities to maximize wealth.
Major Factors Affective Value
- Supply and Demand
- Seasonal and Changing Markets
- Mortgage Market
- Economic Conditions
- Political Actions
- Location, Location, Location
- Condition
- Price
If we only could have more control over these things....but we can't. The only factors that we can possible affect are Condition and Price. Your decisions here will have direct bearing on the sale of your home.
Methods of Evaluation
- Income Approach (Investment or income properties)
- Cost Approach (Most useful on new properties when replacement values are readily determinable)
- Market Value Approach (Comparable Property Sales)
References
1. GarrettFrenchHomes.com - Your Home's Value
2. InvestOpedia.com - Top 4 Things That Determine A Home's Value
