When looking for a return on investment, money is made from cash flow. Cash flow is rental income less all expenses plus appreciation. So appreciation is either market appreciation or forced appreciation.
We will be discussing the real estate market appreciation. For example, the markets that are appreciating currently are San Diego, Los Angeles, San Francisco, Washington D.C., and Boston. Markets that are appreciating but to a lesser degree are Dallas, Houston, and parts of Florida. And then there are markets that are not appreciating at all. The question is, where do we find these markets?
An easy way to find these markets would be through Zillow or REI Blackbook. You can look at Zillow and go back 5 years to find out what the appreciation rate has been. The same process can be done through REI Blackbook and the MLS.
Why Real Estate Market Appreciate?
The next question is, why are these markets appreciating? They are appreciated because of a variety of factors called leading economic indicators. In other words, these things happen first then the market moves up in value. The most important one is job growth. You want to look at these indicators and determine whether they are going up or whether they are going flat or whether they are going down in your market. If the indicators are going up, then it is reasonable to assume that the appreciation that you had in the past will be the same as it is in the near future.
The first economic indicator is new business. If there is new business coming into your area that will affect real estate values. New business economic indicator information can be found in the economic development council or your chamber of commerce.
Next will be the per capita income. That is how much people are making in your area. And again, if this is going up, then this will force real estate values to increase because people have the ability to borrow more money. Per capita information can be found in the census and Chamber of Commerce.
The third economic indicator is building permits. Is the demand for new building permits going up, staying flat, or going down? This information can be found in your local building department. If you have an increase in building permits, it increases the demand, which in turn increases appreciation.
The next indicator is apartment occupancy. If apartment occupancy is above 90%, this means rents are going up and the demand for rentals is going up. You can get this information from your apartment association.
Another economic indicator would be office occupancy. This information can be found in the building, owners, and managers association. If office occupancy is increasing, there will be more people buying houses, which will force appreciation.
The last indicator is population increase. Information on this indicator can be found in your chamber of commerce or your local economic development council. If the population is increasing and people are buying properties then appreciation values will increase.
These factors are what create appreciation in those markets we discussed earlier. There are other indicators, but these are enough to substantiate an increase in real estate values in your area.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.
- BlogOctober 30, 2023Exposing the Money Myth: Financing Real Estate Deals
- BlogOctober 30, 2023Real Estate Success: Motivation
- BlogOctober 28, 2023The Santa Claus Rally
- BlogOctober 28, 2023Build Your Team – the Importance of Networking for Traders