Why Natural Appreciation Is A Bad Strategy For Real Estate Investors

Real estate investors want to make a profit - obviously. Often this profit comes from renting out the property to tenants – cash flow. Another option is to buy a place, live in it, wait for it to appreciate in value, then sell it. We call this the lazy-persons house flip. It’s also known as natural appreciation. Here’s why you should never wait for this.

There are a number of factors that determine how much a house appreciates or depreciates in value: market fluctuation, city growth, a factory shutdown, etc. This volatility usually won’t affect long-term homeowners, because they can wait out the storm (as long as they bought a house within their means). But if you are just sitting around waiting for your house to increase in value, it could be tough days ahead.

At Ali Safavi Real Estate we recommend that real estate investors never rely on natural appreciation to turn a profit. It’s too risky. A real estate investor’s goal is to minimize risk and maximize profit. Don’t gamble. At the very least, put in some effort into remodeling. If you improve the house it accelerates the appreciation process. Be careful not to break the bank in the process. Every year tackle one area of your property. This will greatly increase your chances of making a profit.

Fair warning however, remodeling will not protect you if the market crashes in your neighborhood. One telling statistic: home prices dropped 23% from 2008 to 2012, however renter-occupied houses increased by 8%. If you have the option, investing in rental properties is always the way to go.