Appreciation on New vs. Old Homes
Updated: May 21, 2020
Embarking on your home buying journey entails a lot of detail. You have your list of wants and needs. You have reconciled that modern farmhouse sink on the ‘need’ side of your list. You also keep in mind the budget aspect, and you have a very good idea of your preferred neighborhood. You feel that you are set to go house hunting. Before you make any decisions, though, consider the often forgotten aspects that could mean the difference between a wise investment or a really poor one. This is a good time to take a step back and consider your long term prospects. Wisdom in buying a home goes much deeper than finding what you can afford and what you prefer. The neighborhood matters, not only because of preference, convenience and safety; but because of appreciation factors.
How home appreciation affects your buying decisions.
You may have been among many that assumed a home naturally increases in value as time goes by. Unfortunately not!
Home appreciation factors should play a big part in your considerations. You are investing a lot more than money into this decision, so it is worth making the most of your purchase. An easy way to ensure that you will get the best investment from a home purchase is as simple as understanding the property class system, and how it affects the appraisal of your home. Property and area classification is not as vague as some would like it to sound. And it offers some insight into prospective risks and returns.
A class areas
When an area has new buildings, the best schools, topped by trendy retail and entertainment amenities; this is classed at A. You will find that this area has the most expensive real estate, since things are new, modern. Read: highly sought after.
The factor of importance here is that a class A area will have planned future developments. This is the key to the area remaining highly classed, thereby keeping the probability of a good ROI for you. A house in this area will be less than 10 years old. The newer, the better. Less can go wrong, and styles are unlikely to change drastically in the next few years. Maintenance is not a huge issue, so you will be able to keep the house looking excellent and free of major defects.
Class A areas and properties offer low risk, high return options.
B class areas
If a class A area is simply out of your budget, consider the aspects offered by this area class.
Homes in this area will be between 15 and 25 years of age, and the schooling, retail and entertainment options are still decent to above average. There may even be plans for future developments, although not as lucrative. These homes are easily upgraded, modernized and brought up to A-class standards. What really counts in the valuation of this area is the fact that it will attract blue-collar workers to either buy or rent. With that are also abundant job opportunities. A Class B property will have a higher chance of needing maintenance and repairs, but not to an excessive degree.
Class B areas and properties offer low to medium risk, medium to high return options.
C class areas
Here you will find the older homes. At first glance, buying a good looking home in this area may be the way to go. The home may even be renovated really well.
Tenants in this area tend to be from lower socio-economic groups than the first two classes, and owners tend to be either investors or property managers. Hence, that beautifully renovated house… You will find affordable homes in this area with a high potential for renovation, but schools and amenities may be of lower standard you hoped for. Also, there may be a higher exposure to crime.
Class C areas and properties offer a medium to high risk, lower return options.
There may be other options, such as finding a lower grade house in a higher graded area, which you can bring up to standard. If you would like to explore all your investment options, contact one of our agents to help you spot all the intricate elements to buying your home.