Thursday, November 19, 2015

Property Appreciation - Boosting The Return!

Historically, real estate markets have risen over time – be it 10-20-30+ year periods. Although there have been negative years or periods over time (consider 2008-2010) across many North American markets - but generally the overall trend is up when you look at the big picture. This is a basic ‘principle of investing’ for investors as they consider commercial property alternatives.

In recent blogs we’ve highlighted the importance of ‘ CASH FLOW ‘, but when you factor in ‘FUTURE APPRECIATION’ – the result is an unbelievable money-making & return-boosting combo. Consider the following simple illustration –

See Blog from 11/5/15 – same illustration

2000’ Building – Price - $180,000 (acquired in 2014)
Net Rental Income - $16,000
Cash on cash return - 13.4% - 5 yr return
Projected Sale Price (2019) - $230,000
Capital Gain at time of Sale - $50,000 (+ annualized return of $10,000/yr over the ownership period)

Source: Vancouver Sun


$10,000/$54,000 (original cash investment) adds an additional 19% return at time of sale

Lots of assumptions made here - biggest of which is a 5% per year growth expectation on the real estate value itself. But this is made based on an assessment of the local market / economy, current stability of the leases /cash flow, and any anticipated capital needs for the property. Can this projection be off – sure, appreciation may be restricted to 2-3% per year or unexpected capital improvements on the property may arise , which can curb or impact our projected boost. But the bottom – line is , we believe in the investment property on a ‘forward thinking basis’ and fully expect it to appreciate over this 5 year period.

Based on our experience, property investors come to us with various criteria, investing models, and expectations. But the one common denominator is consistently the expectation of “PROPERTY APPRECIATION” – meaning it will be worth more down the road and they pursue property investments according.

An expectation of APPRECIATION over time is fundamental to property investing – and real estate markets historically have delivered for the most part. Again, our illustration is actual and we will continue to report on it in future posts.

How are things ‘forward thinking’ in your market?

Again, always ON CALL to respond to your interest in the Windsor – Essex market.

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

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