Real estate is often lauded as a stable, long-term investment. The advantages of owning property have and still do attract people from all tracts of life. One study found that 74% of Americans think homeownership is a “key component of the American dream.”
However, home ownership is also an investment. Sometimes buyers can make a good investment just as often as others may make a bad one. The difference between these two situations often involves strategy. To ensure the best outcome of home ownership, you need to know about appreciation, depreciation, and home values first.
Understanding How Your Home Depreciates Over Time
Say you pay off your mortgage and sell your house: you can expect the earnings to equal the purchase price that you originally paid for and any value that may have accrued with time. Every house has different levels of appreciation — or depreciation. Economic factors like the housing market can either increase or decrease home values. For example, Seattle has notoriously high housing costs but the market cooled a little in 2023. The median King County home sold for $910,000 in May 2023, a drop from $998,88 at the same time last year.
However, other factors (like repair needs and construction around the home) can contribute to depreciation, as well. Houses built next to each other in the same neighborhood might have different values if one owner invested in the property and kept up with renovations while the other let their property fall into disrepair.
Steps for Reducing Depreciation
Even though you may not be able to control factors that cause depreciation, such as fluctuations in the economy, there are factors you can control. Consider whether a repair or renovation would make your house more appealing on the housing market. When a potential buyer looks at your home, they typically evaluate its worthiness in comparison to the repairs and changes required after moving in. If there are too many issues, they might make a lowball offer (lowering the value of your investment) or walk away.
Here are a few ways to increase the value of your home in the long run so you can make the most of your investment.
Keep Up To Date on Maintenance
Unfortunately, homes — like all objects and things — require regular maintenance to avoid dilapidation. A brand new roof this year will need to be replaced in a decade. Beautiful landscaping can become overgrown or die. You can fight depreciation (and even embrace appreciation) by caring for your home and keeping up with this maintenance.
A poorly maintained house can also affect more than the appreciation of the house. It can also lead to higher monthly homeowners insurance rates. This costs you more money in the long run while deterring potential buyers.
Experts recommend setting aside at least 1% of your home’s value for repairs each year. One year, this budget might go to multiple small projects. The next year it could go to a single major repair.
If you don’t have any immediate repairs, you can look into other projects, like replacing your siding. Updated siding can be a mid-size project that gives your home a new color while increasing the durability of your property. This is also a great way to improve your curb appeal before selling your home.
Weatherproof Your Home
You never know when an accident, such as a freak natural disaster, may damage your home, causing your home to depreciate. To avoid this, find ways to weatherproof your home.
In periods of good weather, weatherproofing can reduce your energy bills. High-quality storm windows can prevent the sun from heating up your living space — which would otherwise drive up your air conditioning costs. However, these windows will also protect you during major storms, keeping the wind and water out of your home.
Types of weatherproofing may vary depending on your location and the weather typically experienced there. Desert residents need to worry about heat waves during hot summers, so they need more insulation to keep the cold air inside. Tropical residents need to weatherproof their homes ahead of hurricane season by investing in storm windows, hurricane shutters, and even backup generators.
In addition, evaluate your home during any seasonal change to make sure it is in good condition. Catching issues like rotten siding when they are small can save you money on extensive repairs in the future.
Install Alternative Energy Sources
Investing in solar panels and other energy sources can impact your home’s desirability, and consequently, value — no matter where you live. One 11-year study by the U.S. Department of Energy found that buyers were willing to pay $15,000 more for a house with solar panels than for one without.
Not only can solar panels increase the value of your investment, but they can also save you money. You can reduce or eliminate your monthly electric bill by collecting energy from the sun. Some companies even buy the extra power that you generate and can’t use – helping you turn a small profit from your investment.
Use Sustainable Landscaping
Sustainable landscaping can reduce the amount of work you need to do on your yard (preventing overgrowth) while also attracting native animals like pollinators. Native plants thrive in your existing soil, so you won’t have to spend as much on water and fertilizer.
Good landscaping, in general, can increase your home’s value by 20%, especially if you plant trees that can grow bigger each year and provide shade. These same actions can also reduce your utilities, as your HVAC system will have to work less at cooling your house down.
By investing in biophilic home design you can connect with nature while protecting your real estate investment.
Knowing When To Sell Your Home
There’s plenty of advice on how to buy a home and how to improve this investment, but it’s harder to know when the right time to sell is. Ultimately, the best time to sell varies from person to person, and the choice may come down to what you think is best for your situation. Sell when you are ready to move to a new place or want a bigger property. You can also sell your home when you can no longer keep up with the maintenance.
One main thing to consider before you sell is how your real estate agent feels. You can expect to pay your real estate agent six percent in commission costs. Make sure your profits will exceed these fees so you don’t lose money on the home sale.
Tips for Reading The Housing Market
If you feel like a turn in the housing market is approaching, you might want to sell before those changes go into effect. Knowing when to sell requires a little real estate market know-how. Fortunately, you don’t need to be a financial expert to understand what’s going on. Use these tips to guide your actions.
Track similar houses in your area: Running a comparative market analysis can give you an idea of your home values.
Talk to real estate agents: Realtors are on the front lines of home buying. They know whether sellers are getting a lot of offers or not.
Don’t get caught up in the hype: It’s easy to panic about housing bubbles or listen to fearmongers. Track trends and take an objective view of the market.
Do your research so you know whether it’s a good time to sell, buy, or stay where you are.