Supply & Demand: Like everything else in the economy when the supply of a particular good increases the price will typically decrease. This is simply because buyers can buy somewhere else if not with you. You can’t over charge for a home if your neighbors 3 doors down are also selling a very similar house at a lower price. The two of you are competing with each other and will actually drive price down for both of you. Conversely the opposite is true if the supply of homes for sale is low. If buyers don’t have many options to choose from then sellers can usually charge a premium or create a bidding war. When buyer demand is higher than the available inventory of homes it creates a “sellers” market. When the supply of available homes for sale is high and demand is lower is creates a “buyers” market.
Municipal Improvements: New roads, bridges, schools and highway expansions all have an impact on property values. The downtown redevelopment taking place in Quincy is a perfect example of this. Quincy is in the process of converting the city’s downtown area in the same way Boston did the big dig. The city is directing major traffic away from its center and creating alternate routes to major highways. The city also built a new high school and middle school. Major projects like these have a tremendous impact on the property values for surrounding homes. Existing residents tend to stay in place with improvements happening while new residents are trying to get into the area pushing demand upward. The opposite can happen to a city’s home values when the wrong projects are puts in place or there is a long-term lack of improvement.
Inflation: Inflation is described as “The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.” Inflation affects the value of your property by changing its replacement cost. If the prices are going up in general then we can assume the materials to build a home are getting more expensive …which means the total cost of replacing your home will go up. If you walk down the aisles of home depot today the cost of building products are significantly higher than they were 10 years ago. Labor wages are always on the rise as well. If material cost and labor cost of building a new home are trending upward then the cost of existing homes (already built) will follow closely.
Cash Flow: This is where property owners have the most control. Your cash flow is the monthly rents you collect minus the properties operating expenses. You can positively affect the properties cash flow (and value) by increasing the income and lowering expenses. Income increases come from raising the rents as well as finding other sources of income …like laundry, parking and storage. If all else remains, as cash flow is improved the property’s value will increase.
Like us on Facebook for more helpful real estate tips!