Many first time home buyers believe that the functionality alongside other features of the property are what matters the most to increase its value, but the reality is that the property’s physical structure depreciates over time.
It is the land underneath the structure that appreciates in value.
Property prices are a function of local supply and demand, the appearance, functionality, and maintenance of the physical structure will certainly impact value, but these factors have less impact than one may think.
Understanding how location and the future prospects of land values influence property returns allows investors to make better choices between competing assets. The reason that land is an appreciating asset is a simple one. It is in limited supply, and no one is producing any more.
So why are advisors always suggesting that property owners make constant investments to update their homes? The main reason is to counteract some or all of the depreciation that is slowly reducing the value of the structure.
Let’s go over what new home buyers should consider before making an investment in a property(expecting some high return in the future):
- Smaller or less-attractive homes can provide greater investment returns.
To understand this point, think about two places on equal land parcels in the same neighborhood, one valued near the maximum and another selling at half that price. Since local supply and demand factors drive land values, houses in a neighborhood tend to appreciate by approximately the same amount per year. If the more expensive house appreciates by 10% (not including any specific improvements), this would be equivalent to a 20% return for the other – a much more efficient use of investment capital.
- Locations within neighborhoods will affect land values.
Not all spots within an area are considered equal. we can see appreciate that most neighborhoods evolve their own social, cultural and demographic characteristics that impact demand for houses there.
- The average age of neighbors can be important and we should take it under consideration.
- Future development can change your property’s value for better or for worse.
So that’s all for today, hope you found this article useful so far and don’t hesitate in reaching me out if you have any questions or need a consultation.
Stay hungry and stay positive!
Make it a great day,
Sean La Rue