The value of real estate properties is not always easy to assess. Different investors have different needs, objectives and risk tolerances. Nevertheless, they all strive for one thing – appreciation in the value of their holdings. Appreciation occurs for a variety of reasons; here are four of the most common ways that a property can become more valuable:

Property Value – As a neighborhood matures, an area can become more desirable especially if the more distressed properties in the neighborhood are rehabilitated by competent investors. Also, as a city develops, neighborhoods closer to the downtown metro areas can also significantly appreciate due to their lessened commute times and overall proximity to premier shopping and entertainment venues. 

Zoning Changes – It is a rare city - Houston is an example - in the United States that does not have some zoning restrictions.  These local ordinances prohibit the building of certain types of buildings in certain area. For instance, an owner who had a property zoned as “residential” could not legally build or open a business in that home.

While this process protects homeowners from living next door to a bar or other undesirable business neighbors, it can sometimes slow down the growth of a city or the rehabilitation of its poorer areas. For this reason, areas are sometimes rezoned. When this happens, property can appreciate greatly in a very short period of time.

Improvements – Adding anything from a new roof through a covered parking lot to a full-blown addition will see a property appreciate in value. The risk is that the money you spend will not be recouped when you sell the property. Unlike the first two factors that comes at essentially no cost, you should carefully consider how an improvement will affect your operating costs, revenue stream and ultimate resale value.

Inflation – While this word is often derided as ugly, the process of inflation can actually be a property owner’s best friend. When you purchase a property, you incur a debt at the current value of the dollar but as time goes by, you end up paying off the debt with discounted, inflation-affected dollars. 

In short, as inflation affects the general economy, the purchasing power of dollars decrease and the value of items (as valued in those dollars) increase. Thus, you get a double benefit. Not only is it easier to pay off the debt, you also see your real estate properties increase in value in real terms.