The reason people start real estate investing is to make money. But real estate investors who succeed at making money understand that the real money is made when value can be added to their rental property.
In this article, I want to make those who are new to real estate investing aware of six ways investment property increases in value.
1. Inflation- Inflation increases rental property value because of the increased cost to replace the property. The increased cost of land, building permits and fees, materials, or actual construction adds value to properties already in operation.
2. Improved infrastructure- Roads, electricity, water, and sewer systems, police and fire protection, parks, hospitals, and so on developed around the property have a major effect on the property’s real estate value.
3. Economic conversion- When new zoning laws allow you to convert a small apartment building to offices or a single-family home into a four apartments it can add value to your real estate investment.
4. Increased cash flow- Real estate investors buy the cash flow in rental property, so when you can the cash flow generated by your rental property (assuming other factors do not change) it will increase the resale value of your property.
5. Capital improvements- Unless the value of the land makes capital improvements superfluous, adding extra apartments to a building, or an extra bedroom or bathroom when the market demands it can increase your property’s value.
6. Supply and demand- The shortage of available rental property at a time when the demand for rental income property is high drives rental property values up so pay close attention to your local market, because when your town has room to absorb more and investors are there to buy, your rental property value will increase.
Although most of these factors are not in your control, successful real estate investing is not accidental.
Meet with your local planning and building department and ask them about their comprehensive plans for the area. Learn whether zoning can be changed that would permit a more profitable use for the property. Discover how many permits have been issued to builders for the construction of comparable rental properties in the area.
Real estate investing is a business and therefore it is incumbent upon you to research ways to make your investment business profitable.