Engle Realty: A Greater Baton Rouge Louisiana Real Estate Company
Specializing in both Residential & Commercial Real Estate Sales
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Appreciation of Real Estate
Appreciation is essentially the amount of money that a property increases at a given point in time.
Appreciation could be the sole reason an investor buys a property. Land bought under speculation by an investor is bought under the assumption that it will increase in value, or appreciate.
Some real estate buyers who purchase investment rentals may override their luxury of having a cash flow on a property and even risk having a negative cash flow with the hopes of having appreciation make the investment worthwhile.
For example, an investor may buy a duplex for $200,000, even though it makes only $1,000 a month in rent with the hope that in five years the property will have appreciated to $300,000. At year five the investor could sell the property for a $100,000 gross profit. Say he had a conservative 8% loan on the $300,000 with 100% financing. While he may have had to shovel out a little less than $350 a month for 5 years to total $21,000. He would benefit in year 5 in the amount of $79,000. That is a form of long term investing. Dividing $79,000 by five (to represent the number of years the property was held), the investor would be making $15,800 a year, or $1,316 a month after five years.
That's just profits. What about Real Estate tax write-offs? Real Estate Depreciation? Etc...