Appreciation can be Controlled
There are four types of Appreciation in the real estate and business investing. Learn how to distinguish phased, passive, forced and found Appreciation.
Use your knowledge to control Appreciation to create deals, increase value in the marketplace and build your portfolio.
Video Transcript
Hi, Jay Massey with the CashFlowDiary.com; Yet with another quick tip when comes to real estate and business investing.
Here's what I want you to know: I want to understand the concept of appreciation.
Most people know that appreciation exists, and that's what we've been waiting on for a very, very long time, but what I want you to know is that there are different types of appreciation. What you need to know about appreciation is that you can control it.
Most people think you can't control it; they wait for prices to go up. Here's my point; this is what I mean: Appreciation can be found, phased, forced, as well as passive. What most people know is the passive appreciation.
You bought a house in 1906, you wait until 1966 and for some reason, and it’s worth more money as measured in dollars. If you're wondering why I often say ‘as measured in dollars,' check out our information as it relates to inflation and some of those other things that we have available, and it'll make more sense to you. Here's the point, as measured in dollars, it goes up.
There are other ways to create value in the marketplace. One of my favorite ways to do so is what is known as found appreciation. Found appreciation is when you are able to negotiate and buy something at a discount. It actually has a higher market value than what you currently are paying, but because of your skill set that you bring to the table or the situation in understanding what it is and what it takes to create a deal, you're able to ‘find' appreciation. I love found appreciation. Say you find a single family house that's actually worth $100,000, but you were able to buy it, not because its condition is bad, but because of other circumstances, you were able to use those things to be able to buy the house at $70,000. I'm just making up numbers, but the point is that that $30,000 is found appreciation.
Appreciation can also be phased. Builders are very familiar with this.
Here's a way I like to phase appreciation: You can phase appreciation by, say you buy a single-family house, but don't just buy one single-family house, rehab it, and rent it out; buy the entire street. As you go down the street, guess what happens?
You're lifting the value of that entire neighborhood. You buy the single-family houses and you buy the little, small duplex, four-plex, eight-plexes that are there at the same time, and now, not only do you own and control the whole street, but what you bought at the beginning is probably worth more than it was at the end, simply because now the whole street is a whole lot better. In phases, you end up appreciating the original asset, as well.
You also can force appreciation. Many people who do fixing, flipping, and rehabbing are very familiar with this. This is where you take an asset in probably a horrible condition, and then from that horrible condition, you make it significantly better. Maybe you fix up the kitchen and you add stainless steel, you add air condition, you do something to the asset to make it better, and therefore, you force its value to go higher. That's what we're talking about when it comes to appreciation.
Understanding those distinctions and how you're going to apply them is very key to being able to build your business plan and make that work.
If you'd like more information like this, make sure that you go over to our website at CashFlowDiary.com, or catch us on the iTunes podcast, as well.
We also have a Facebook channel that you'd be able to connect with us on, and some of you may even want to take advantage of our complimentary course that is called Cash Flow Foundation.
It's the beginning of our Cash Flow Creation System that has the ability to teach you how you'll never need a job again.
