When you’re trying to predict home appreciation, there’s some good news and some bad. First, there’s no guaranteed way to determine how much any home you buy will appreciate. You may find home appreciation calculators online, but every property’s situation is so unique, it’s best to take automated results lightly. Fortunately, there are signs that a home is likely to go up in value (aka, appreciate) over time.
It’s in a great location.
It’s a real estate cliche, but for good reason: Location really matters. If a home is located somewhere people want to live, and where people will continue to want to live, that’s a good sign for home appreciation.
A “great location” could be a number of things. For example:
It’s a smaller home.
It seems counterintuitive that smaller homes appreciate more, but it’s just a matter of math. Two homes in the same neighborhood on similar plots of land are likely to appreciate by the same amount. That amount will be a larger percentage of a less-expensive structure, so that means more appreciation.
The property has value on its own.
The reasoning above works for one reason: property is where so much of the real estate value is. Land appreciates more reliably than the buildings on it. It makes sense because buildings age and get run down, and land doesn’t. That’s why certain types of properties—like waterfront—tend to have better home appreciation, no matter what sort of structure sits on it.
The home could use a bit of work.
The important words here are “a bit.” House flipping is a risky business, because major fixer-uppers often come with surprises (as many home makeover shows dramatize). But homes that need a moderate amount of work that can be done over time tend to rack up a better return on investment for homeowners. A new construction home, on the other hand, will come to you in top shape, so it doesn’t leave as much room for improvement.
The local housing market is strong.
Some local housing markets get hot, then cool off. Others have reliably strong markets over time relative to others. You’ll find your real estate agent is an expert in this and can help you look at trends over time to find neighborhoods with strong, stable markets. These places are often close to large, dependable employers, like big universities.
Thinking about maximizing your returns? While some fixer-uppers are a gamble, it’s possible to find homes in need of serious work that turn out to be a great deal. Here’s how to make smart moves when buying a fixer-upper.