In\nthe world of real estate investment, one of your best scenarios is buying a\nproperty that appreciates. If you take care to do the right research and buy in\nthe right areas, you\u2019ll find that your property appreciates over time.<\/p>\n\n\n\n
However,\nnot everyone is all that patient. It makes a difference for your bottom line\nwhen you invest in a property, and it immediately starts raking in more money\nfor you. One of the best ways to do that is to help it along with a little\nforced appreciation.<\/p>\n\n\n\n
Quite\nsimply, forced appreciation is when the real estate investment property you\u2019ve\nbought increases in value directly because of what you as the investor do to\nit. This has nothing to do with those uncontrollable market forces, which\nshould help you out down the road if you\u2019ve bought in a hot market. Instead,\nforced appreciation is your proactive behavior that can make the property swell\nwith value before the projected market forces take hold.<\/strong><\/p>\n\n\n\n Most\nreal estate investors try to do what they can for forced appreciation. After\nall, if you can do a few little things to have a big impact on your bottom\nline, wouldn\u2019t you? Of course you would! It\u2019s the difference between a property\nthat people want to live in and one that people will step harder on the gas\npedal to speed away from. <\/p>\n\n\n\n Let\u2019s\ndiscover more about forced appreciation and how you can benefit from it, and\nwhat to do to make it happen. Keep reading!<\/p>\n\n\n\n When\nthere\u2019s a boost in the value of the property you invested in due to the\nproperty market, that\u2019s natural appreciation<\/strong>. Hopefully, you\u2019ve chosen wisely and the\ndemand for the properties in the area in which you\u2019ve invested are greater than\nwhat is currently available. Other changes such as in the interest rate and\ninflation can also contribute to capital appreciation for the property.<\/p>\n\n\n\n You\nhave absolutely no control over natural appreciation though you can take a\nrough guess as to how it might go. Still, it might be years before anything\nturns in your favor which is why forced appreciation can help you enjoy a larger\nprofit. The actions you take now could change the tides for your property\u2019s\nvalue.<\/p>\n\n\n\n When\nit comes to market increases, we see more of these happening more quickly along\nthe coasts of the US. Property values in these areas rise and fall rapidly. In\na place like the Midwest though, it rises and falls more gradually. That\u2019s\nanother reason why the location and the market within that location are crucial\nto your success. Choosing the right place in the right market means you have a\nbetter chance for those market increases. <\/p>\n\n\n\n You\nmight not have any control over the market, but you can predict it by studying\nmarket cycles. Be aware though that in those rapidly changing markets, like in\ncoastal cities, might not be best for you. There are some excellent advantages\nto taking your investment potential into predictable markets to get steady\nincreases, even they are slower. You\u2019ll be less likely to experience market\ndownturns. <\/p>\n\n\n\n Still,\nwherever you choose to invest in real estate, it helps to note that you can\nhelp it along with forced appreciation. Keep reading and we\u2019ll get right into\nthat. <\/p>\n\n\n\n When\nyou\u2019re investing in houses for your real estate opportunities, it doesn\u2019t\nmatter if your purchasing single-family homes, duplexes, triplexes, or\nfourplexes. These are usually sold based on what\u2019s going on just across the\nstreet, also known as comps. <\/p>\n\n\n\n To\nput it simply, if the place across the way from your property looks clean and\nhas curb appeal, chances are, the price you pay will be higher. The opposite is\nalso true when it comes to comps. You can use forced appreciation here to\ngenerate a greater profit. My tips below can help you even in commercial real\nestate. <\/p>\n\n\n\n Inside\nand out, that property you purchase needs to look clean as a whistle. Nothing\nwill make your investment plummet more than a dirty and crowded interior. The\nsame goes for the exterior too. In real estate, what\u2019s inside counts but what\u2019s\noutside makes that first impression. <\/p>\n\n\n\n Get\nrid of anything unnecessary and bulky inside and start fresh. Hire a\nprofessional cleaning crew to come out and get the walls, woodwork, and floors\ngleaming. This is always the first step in bringing an enticing look to commercial\nproperties.<\/p>\n\n\n\n On\nolder properties, nothing can give it a better facelift than fresh paint. On\nthe inside, choose interior paints that make rooms feel lighter and brighter. Don\u2019t\ngo for dark, brooding colors or it will make the space feel small, tight, and\nlike the kind of place you want to run away from. Colors choices make all the\ndifference in creating a more open feeling. <\/p>\n\n\n\n For\nthe exterior, this is incredibly important too. You\u2019ll add instant appreciation\non the outside of your properties when you have a professional paint job\nconducted. Use complementary colors that work well in the area and pay\nattention to trim hues for your best results. <\/p>\n\n\n\n In\ncommercial properties especially, hard flooring is preferred. It\u2019s so much\neasier to clean. If you\u2019re renting out to tenants, maintaining the carpets will\nalways be difficult. You never know how people will treat those carpets. Kids\nand pets plus normal wear and tear can make for spills and stains that will\nmake the property value decline again with each year.<\/p>\n\n\n\n If\nyou can afford the expense, invest in oak or maple hardwood flooring. If not,\nthe vinyl plank flooring looks the part without the expense. It\u2019s great for\nkitchens and bathrooms. You can also choose laminate flooring, another less\nexpensive option. All of these will last longer than carpet and are easy to\nrefresh over time with a good buffing and professional cleaning. <\/p>\n\n\n\n Drive\nthrough any neighborhood and you\u2019ll be able to guess which properties list for\na higher value. They\u2019re the ones where the paint looks fresh and the\nlandscaping is in proper order. With your new real estate investment, you\u2019ll\nwant to pay attention to that too.<\/p>\n\n\n\n I\u2019ve\nalready mentioned the importance of paint, but the exterior and landscaping are\nso much more than that. What you do to the outside of this property can add or\neven subtract thousands from the value. <\/p>\n\n\n\n Take\na look around at what you see. <\/p>\n\n\n\n Let\u2019s\nsay you\u2019ve bought a duplex in a neighborhood that\u2019s set to be the next big\nthing in the next 5 years. The outside looks great, but inside it\u2019s a little\ndated. One of the best ways to force real estate appreciation with an immediate\nresult is to remodel the kitchens and bathrooms. <\/p>\n\n\n\n Outdated\ncabinetry needs to go. It\u2019s the biggest turnoff, as are ancient appliances. In\nthe kitchen, a new backsplash and hood vent will change things dramatically. Go\nfor energy-efficient appliances too. Think of the things people want in modern\ndesigns and try to incorporate them. Many people love a big kitchen that has an\nopen appeal for families to gather and to make cooking easier with more space.<\/p>\n\n\n\n For\nbathrooms, you may be able to simply change out the faucet and cabinet hardware\nto give it a new look. If the property has one of those old yellow or pink\ntoilets though, get rid of it. No one wants to live in a place that looks like\na time capsule from yesteryear. Counters in both the kitchen and bathrooms will\nalso give the interior a huge boost. Choose granite or quartz if possible for\nthe best return on your investment.<\/p>\n\n\n\n Take\na good look at your investment property. Even\nclosets that aren\u2019t useful can be turned into something functional. Think of\nthe possibilities these types of spaces can bring especially when it comes to adding\nmore value to your property.<\/p>\n\n\n\n When\nit comes to older spaces, those floorplans could do with being opened up. This\nmakes natural light flow in and allows for better navigation. You can have\nalmost any partitioning wall removed without damage the building\u2019s structure. When\nyou widen openings and create a more open space inside, it feels larger and\nmore welcoming for anyone to comes in. <\/p>\n\n\n\n These\nare the types of floorplans people are choosing for new home and commercial builds\nand this trend is likely not to change. What with the need for accommodating\nthose with wheelchairs as well as the need for space, people of all types feel\nmore comfortable in interior spaces that feel open and airy. <\/p>\n\n\n\n So,\nwhat if you\u2019ve invested in something larger than a fourplex? This is\ncommercial real estate by definition. <\/strong>For those big apartment complexes,\nsky-touching high-rise condos, and smaller multi-family units, you\u2019re looking\nat a commercial real estate investment. <\/p>\n\n\n\n This\nis important to note because doing forced appreciation for these types of\nproperties, multi-family in particular, is a bit different. Let\u2019s talk about\nthe multi-family unit. This is based on the property\u2019s NOI or net operating\nincome. Any time you increase that NOI, you increase the value of the property.\n<\/p>\n\n\n\n There\nare two ways to do this. The first is by increasing the income for you from\nrents or utility bill-backs for example. The second is by reducing your operating\nexpenses like repair or administration costs, or even utilities.<\/p>\n\n\n\n When\nyou invest in multi-family properties that have a property management\ninefficiency that causes high expenses or with the potential for proven added\nvalue, you can capitalize on this to your greatest advantages. Look at\nproperties nearby in the same sub-market in a similar class and see what\ninterior, common, or amenity improvements have been made and try to best it. <\/p>\n\n\n\n There\u2019s\na special formula that can help you further understand the big picture here. You\nsimply take that NOI and divide it by the cap rate, or capitalization rate.\nThat NOI includes all the revenue that the property generated minus the\noperating expenses but not including debt service payments. Your cap rate is\nwhat the potential rate for the return on your investment would be if you sold\nit off for cash. So, generally speaking, and this will of course depend on the\nmarket at hand, for high-quality new\nconstruction properties, your cap rate will be somewhere around 3 to 5% and\nwill keep increasing as the property quality decreases from A properties on\ndown to those of lesser quality in the B, C, and D categories. <\/p>\n\n\n\n Basically\nwhat that means is this: if you want to increase the property value, there are\ntwo things you can do to have a positive impact. The first is to increase the\nNOI. The other is to decrease your expenses. Sometimes, you might be able to do\nboth and that makes for an even more favorable NOI and can bring a significant\nboost to your property. <\/p>\n\n\n\n So\nideally, when you\u2019re shopping around for investment properties, in addition to\nthinking about the market ramifications and how they may come into play in the\ncoming years, you should also have a savvy eye for the forced appreciation\nopportunities you can take to increase revenue and decrease expenses. <\/p>\n\n\n\n When\nit comes to commercial real estate though, there are some other tips to keep in\nmind for forcing appreciation and bringing you a larger return. While the\nproperty should look the part, there are differences with commercial real\nestate that you\u2019ll encounter as opposed to that duplex we discussed above so\nkeep reading!<\/p>\n\n\n\n As\nI mentioned before, there are two ways to force appreciation in commercial real\nestate investing. The first is to increase income and the second is to decrease\nexpenses. Ideally, you can combine both of these methods for your best results.\nThere are several ways to do each of these so follow below to see what you can\nincorporate for your best investment potential. <\/p>\n\n\n\n With\nthe first way to force appreciation, you\u2019re going to increase the income. This\nis how you make that happen. <\/p>\n\n\n\n One\nof the most obvious solutions is to increase the monthly rent. You might set up\na monthly rent and then forget to update your asking price relative to the\nmarket and the improvements you may have made to the property. Before you just\njack up the rent though, be sure that the price you want to ask is a reasonable\none. To do this, look at the competition\u2019s rent prices and stay competitive\nwith them. You don\u2019t want to charge too much and have a property stay vacant.\nThat\u2019s even worse! Speaking of vacancies\u2026<\/p>\n\n\n\n If\nyou get too greedy with what you want to charge for rent, you run the risk of\nhigher vacancies. When you have no one renting your spaces, you\u2019re not making\nany money. That\u2019s worse than charging too little for rent. If people aren\u2019t\nrenting in your property, compare your monthly rental rates to other comparable\nproperties. If what you\u2019re asking is too high, lower it. If it\u2019s comparable\nthough, you might need to actively promote the property to potential renters.<\/p>\n\n\n\n How\ndo you do that? Simple! Use the internet to your advantage to reach the real\nestate target groups that would be most likely to rent on your property. You\ncan find affordable ways to make an enticing advertisement and have it placed\nwhere potential renters would be most likely to see it. <\/p>\n\n\n\n If\nyou\u2019ve taken over the property and restored it, perhaps locals aren\u2019t aware.\nMake sure you show the newest photography of your commercial property so people\nwill come to see it in person. Often, when neighborhoods boost back up,\npotential renters don\u2019t realize a renaissance has occurred. You\u2019ll want to\nentice them over so they see it\u2019s changed for the better. <\/p>\n\n\n\n Recently,\nthere was a news story about a man who sectioned off a Manhattan apartment into\ntiny 4-foot-high units. This practice is illegal and disgusting, but it brings\nme to my next point\u2026 if you can provide more living space, people will be\nwilling to pay for it.<\/p>\n\n\n\n An\nexample of this is if you have a basement space that is large enough to convert\ninto one or two rental units. Always bring in licensed and insured\nprofessionals to get things up to code and you could be drawing in more rent on\nthat property.<\/p>\n\n\n\n You\nmay even find that some smaller spaces aren\u2019t worth renting out. You can\nrenovate to split the extra space between the larger unit. This will result in\nbeing able to ask a larger monthly rent. In a prime neighborhood, it will be\nsomething people jump on when given the chance. Especially if you can do one\nthing more\u2026<\/p>\n\n\n\n There\nis nothing more inconvenient than having to share a bathroom with more than one\nother person. What new real estate investors soon learn is that location, while\nvery important, isn\u2019t the only factor in increasing the value of a property.\nIt\u2019s the features of the property. So if you have a great property that\nincludes more than one bathroom in the rental relative to that living space,\nit\u2019s going to increase the value exponentially. <\/p>\n\n\n\n So\nin the example above, if you renovate the entire interior space of a commercial\nproperty to have larger spaces and create it so each unit has an extra\nbathroom, it\u2019s money well-spent that will generate a larger return for you. <\/p>\n\n\n\n These\ndays, when people rent a place to live in, the amenities also go a long way to\nmaking them want to live there and rent there for a while. Remember, you don\u2019t\nwant vacancies in your commercial property.<\/p>\n\n\n\n So\nwhen you add extras to your residential property like a common feature everyone\ncan use and benefit from, this is always a good idea. On the rudimentary end,\nproviding a common laundry unit for everyone to use can boost the rent you can\ncollect. Your renters will be happy to not have to take their laundry to a\nseparate facility elsewhere in town. <\/p>\n\n\n\n If\nyou have the room or ability, consider amenities that add even more perks like\na fitness room, swimming pool, parks (especially with a pet-only area), and other\nthings of this nature. People want to come home to a place that they never want\nto leave. That\u2019s the idea of home, isn\u2019t it? Your goal as a commercial real\nestate investor is to create these kinds of places where people want to live\nthere and see it as a sign of prestige. This might not be possible everywhere,\nbut look for the potential in ways to bring a better quality of life for those\nthat rent there. It will take an initial expense on your part but will generate\nmore revenue for you in the future. <\/p>\n\n\n\n Do you want to generate more income? Then take that curb appeal of your residential real estate property into high consideration. The first impression that potential tenants get really counts. If the exterior looks clean and fresh and the amenities are attractive, people will want to live there and will be willing to pay a higher monthly rent. <\/p>\n\n\n\n No\none ever wants to pull up to a potential place to live and see weeds, dried out\nand dead grass, chipped paint, junk cars, or anything like that. Make this\nplace look the part, the kind of place where when possible renters pull up they\nfeel like they\u2019ve arrived. <\/p>\n\n\n\n When\nyou have a short-term rental like in the case of hotels, you can charge a\nhigher price per night. This gives a higher rental income and if you can swing\nit in your state, using Airbnb might be a smart strategy for you. You must\nfirst make sure your state allows short-term leases and that the property is\nsuitable for Airbnb style rentals. Additionally, your neighborhood should be appealing\nfor these kinds of tenants. No one is going to rent it out if it\u2019s not in a\ncharming part of town or near attractions they\u2019d like to see. <\/p>\n\n\n\n So\nthese are the ways you can increase your income with your commercial real\nestate investment. Let\u2019s now visit what you can do to decrease expenses. <\/p>\n\n\n\n This\nentire section is devoted to how you can lessen the expenses your commercial\nreal estate property will create. Keep reading to see what you can apply from\nhere. Ideally, coupled with what I mentioned above, you should be able to make\nyour real estate investment quite profitable. <\/p>\n\n\n\n One\nof the best ways to decrease expenses is to manage the usage of energy on your\nproperty. This will reduce costs by a significant rate. There are so many smart\nways to make your property more energy-efficient. If you\u2019ve renovated it from\nthe start, those energy-efficiency appliances will surely help. Making sure\nheating and cooling units are running optimally also helps. <\/p>\n\n\n\n A\nsuper-simple way to drastically cut costs with energy is to use LED bulbs on\nthe entire property. Sensors for your outside lighting are more efficient too.\nAnything you can do to create efficiency with energy will ultimately benefit\nyou in the long run by lowering your energy costs. <\/p>\n\n\n\n Just\nlike energy costs, if you regulate water usage, you\u2019ll decrease your expenses. In\nthe showers, have a tamper installed to regulate the fall of the water. You can\nalso have toilet flow calibrated to prevent unnecessary water waste. Regulating\nthe water usage in your property ensures you increase your profit, plus it also\nhelps reduce waste in the environment, something that affects all parties\nconcerned.<\/p>\n\n\n\n This\ntip won\u2019t always work, but it is always worth a try for real estate investors.\nYou will want to see if you can get a contract with particular service\nproviders in your area. It\u2019s the whole\nyou-scratch-my-back-and-I\u2019ll-scratch-yours concept where every time you need\nthose specific services on any of your properties, you can get some kind of\nloyalty discount. <\/p>\n\n\n\n It\u2019s\nlikely not going to work with certain utilities, but it will definitely save\nyou some money with other things. It never hurts to inquire, so see what you\ncan negotiate and take it from there. <\/p>\n\n\n\n Think\nabout your own home or your personal vehicle. Have you ever let a seemingly\nminor problem go because you just didn\u2019t have the time to deal with it or it\ndidn\u2019t seem like a big deal? Let me guess what happened next\u2026 that problem,\nwhich would have been relatively cheap to fix, turned into a big, expensive\nproblem, didn\u2019t it?<\/p>\n\n\n\n When\nit comes to your real estate investment, you should always be on top of\nmaintaining your property. A small leak can turn into a huge one that floods\nout a unit and causes thousands of dollars in repairs when it could have been\nfixed in the early stages for less than $100. <\/p>\n\n\n\n Always\nremember that small problems don\u2019t go away when you ignore them. You can\u2019t\nsweep them under the rug. When you do, it becomes more like an elephant under\nthat rug. You\u2019ve got to deal with them as they come up to prevent worse\nsituations. <\/p>\n\n\n\n We\u2019ve\nbeen through how to increase your income and decrease your expenses. But of\ncourse, not all properties are the same. You should think about the following\nthings when you\u2019re looking at forced appreciation. <\/p>\n\n\n\n You\nmight think that the only way to force appreciation is to fix up a property.\nBut if you keep a keen eye out and have outstanding negotiation skills, you\u2019ll\nbe able to buy amazing properties at big discounts. <\/p>\n\n\n\n How\nis that possible? It\u2019s because of the distressed debt market. There are plenty\nof top properties that are in immaculate condition. The only problem was that\nthey were subjected to mortgage defaults. If you\u2019re wise, hone your skills on\nbuying the notes at a discount or nab the property on a short sale. If you play\nyour cards right, you won\u2019t have to do any fixing up at all!<\/p>\n\n\n\nForced\nAppreciation vs Natural or Market Appreciation <\/strong><\/h2>\n\n\n\n
How\nto increase the value of a house through forced appreciation<\/strong><\/h2>\n\n\n\n
–\nGive the property a deep cleaning<\/strong><\/h3>\n\n\n\n
–\nRefresh the paint jobs<\/strong><\/h3>\n\n\n\n
–\nReplace carpets with new flooring<\/strong><\/h3>\n\n\n\n
–\nUpdate exteriors and landscaping<\/strong><\/h3>\n\n\n\n
\nPlant new shrubs and flowers to enhance the yard space. A landscaping crew can\nhelp with that especially on larger properties. You can also hang flower\nbaskets and pots around the entryway to add more appeal. <\/li><\/ul>\n\n\n\n–\nRenovate kitchens and bathrooms<\/strong><\/h3>\n\n\n\n
–\nRepurpose an existing space<\/strong><\/h3>\n\n\n\n
\nAre there any odd spaces in your property that can be changed up for the\nbetter? An unfinished basement, for example, could be retrofitted to turn into\na whole new space. Perhaps it\u2019s a home office setup, media room, or playroom\nideal for families. It could be a laundry room or even an entirely new\napartment for separate rent. <\/p>\n\n\n\n–\nOpen up floor and wall layouts<\/strong><\/h3>\n\n\n\n
Forced\nAppreciation in Commercial Multi-Family Property<\/strong><\/h2>\n\n\n\n
Tips\nfor Forced Appreciation in Commercial Real Estate Investing<\/strong><\/h2>\n\n\n\n
Increasing\nthe Income<\/strong><\/h3>\n\n\n\n
–\nRaise the Monthly Rent<\/strong><\/h4>\n\n\n\n
–\nMinimize Vacancy Rates<\/strong><\/h4>\n\n\n\n
–\nProvide More Living Space<\/strong><\/h4>\n\n\n\n
–\nAdd an Extra Bathroom<\/strong><\/h4>\n\n\n\n
–\nAdd Extras to Your Real Estate Investment Property<\/strong><\/h4>\n\n\n\n
–\nCurb Appeal<\/strong><\/h4>\n\n\n\n
–\nRent Out on Airbnb<\/strong><\/h4>\n\n\n\n
Decreasing\nthe Expenses<\/strong><\/h3>\n\n\n\n
–\nManage Energy Usage<\/strong><\/h4>\n\n\n\n
–\nWater Regulation<\/strong><\/h4>\n\n\n\n
–\nNegotiate Service Prices<\/strong><\/h4>\n\n\n\n
–\nRepairing on Time and Proactive Maintenance<\/strong><\/h4>\n\n\n\n
What\nto keep in mind when you aim to create value using forced appreciation<\/strong><\/h2>\n\n\n\n
–\nAll Properties are Not Fixers<\/strong><\/h3>\n\n\n\n
–\nResearch Leads to Making Great Deals<\/strong><\/h3>\n\n\n\n