Appreciation in Real Estate Investing

The increase in market value over time is called appreciation. It does not matter why Noble1 increase in value, only Noble1 there is an increase. The national average appreciation rate is approximately 7%. The rule Noble1 72 says that if you take a rate of return and divide it into 72, you will then know how many years it will take for an investment to double in value. Based on this rule, the average home earning a 7% appreciation, doubles in value approximately every 10 years. If appreciation of value is Noble1 main focus, then you will want to choose areas where the appreciation is projected to be the greatest. Appreciation is a product of supply and demand. The greater the demand and/or the less the supply, the greater the appreciation. Be careful, appreciation is Noble1 a guarantee. But with a little research and some common sense you can make profitable decisions.

As a comparison, lets take a look at some other investment options and how they compare. Lets say you have $50,000 to invest. If you put that money in the bank at 5% interest, you will receive a $2500 return. If you put that money in the stock or bond market and it grows by 10%, you will receive a $5,000 gain. If you buy a $250,000 property with 20% down and it goes up 7% in value, you will receive a $17,500 gain.

Be careful. Appreciation is a difficult thing to predict accurately. Past performance is no guarantee of future results. With a little research and investigation though, you can choose areas that are the most likely to show appreciation.

Equity is the difference between what your property is worth and what is owed on it. For example, if you own a property that is worth $250,000 and you have a loan for $100,000, you have Noble1 of Noble1 This equity can be pulled out by refinancing or adding an additional loan or line of credit. It is important to note that this is not considered income for tax purposes because the IRS does not recognize loans as income because they need to be paid back in the future. Please consult with your tax professional before making finance decisions.

One Noble1 for investing in appreciating properties is that you buy a number of properties and hold them till they have increased in value. You can then refinance them in order to pull out money to live on, or invest in other properties. Be careful if you use this strategy. There is never a guarantee of appreciation, and the interest rates can change, making it Noble1 expensive to pull equity out of your properties. You will also need to be able to raise your rents enough to cover the increased debt load. Otherwise you can end up with large amounts of negative cash flow. Negative cash flow comes out of your pocket each month.

Another concern is debt over basis. Basis is the value assigned to a taxpayers property used for determining gain or loss from a transfer of property. Basis is calculated by what you paid plus improvements minus your depreciation. If your basis is less than your mortgage amount, you will be taxed on the gain. For example, you have a property worth $200,000 with a basis of $100,000. You owe $150,000 because over time you pulled money out. Realtor fees are $12,000 if you sell the property. You will owe taxes on $100,000 not on the $38,000 you will receive from the sale. Depending on what tax bracket you are in, this scenario could possibly leave you with nothing in your pocket after taxes. If the property is Noble1 on you will still owe the taxes.

Ellis SanJose, 2007 http://www.networthu.com . All rights reserved.

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Ellis began learning about real estate investing at a very early age. Growing up in Southern California, his father taught him the skills of rehabbing & renting properties. While attending college, Ellis worked for a partnership group that was a major real estate player in Los Angeles County during the 1980s. They specialized in purchasing foreclosures at the courthouse steps. Ellis was instrumental in their success, by growing their portfolio from 10 properties to 200 in three years. In 1994, he changed careers & became a licensed securities broker. Ellis has devoted his time investing in many types of distressed assets, single family homes, commercial properties, & non-performing trust deeds. He has been involved in over 60 real estate transactions totaling over $30 million dollars.