It’s no secret that real estate is a valuable thing. Buying a home is often a better choice than renting one, and those with the means may even want to invest in second properties to rent to others.
But what is it that makes real estate so valuable? Let’s explore that topic below.
Supply and demand
The broadest and most obvious explanation for the value of real estate is the same explanation that economists use for value and price in general: supply and demand.
The laws of supply and demand mean that when something becomes scarcer, people tend to pay more for it. And since, as the old saying goes, “they’re not making any more land,” real estate tends to grow scarcer over time. While no more land is showing up, our population is still growing.
Demand drives up price, too. Demand can go down, so the real estate market is not entirely guaranteed to go up over time, especially not in each and every individual location. But it is true that the real estate market tends to go up over time.
The property’s location
“Location, location, location,” goes the most famous saying in real estate, and it’s not wrong. Location is a huge driver of supply and demand, and therefore of real estate property values. After all, supply and demand is largely responsible for real estate values.
If a given property is in a nice neighborhood, that makes it more in-demand. The same goes for being in a nice school district, being close to highways and other transit options (but not too close), having attractions nearby, and being convenient to popular places of work.
Amenities and improvements
A beautiful and modern-looking house can still suffer a loss of value if its comfort level and amenities are not as modern as its look. These days, buyers and renters expect up-to-date appliances, central air, and other comfort essentials.
You can maximize the value of your real estate property by improving it inside and out. Adding a deck or patio to a home, for instance, can increase its value significantly. A pool can add to a home’s value in many areas and neighborhoods, so consider in-ground pool construction.
If you invest in these sorts of improvements in your home, you might make some of that money back if (or when) you sell your home. Plus, of course, you’ll get to enjoy the improvements until that day comes.
Maximizing your value in your specific situation
The above factors loom large in the value of a property, but there’s another factor that matters just as much: you. When you choose to buy your own home or invest in an income property, you’ll most likely need the help of loans like mortgages and investment property loans.
You’ll be taking on debt in the hopes of saving or making money long-term, and you’ll become responsible for a very, very valuable asset. You need to consider what you can afford and what your priorities are at this point in your life.
If you’re considering buying your home, for instance, you’ll want to consider how long you’ll be staying in the area, whether or not this will be a “starter home”, and what sort of future plans you have for your potentially growing family.
If you’re investing in an income property, you’ll want to consider how much of your net worth you want to invest in this venture (remember to stay diversified). Your decisions on these fronts will have a huge impact on whether and how much you choose to spend on real estate.
