Investing or buying real estate takes a lot of careful research and planning. Several factors should be considered—not just the property itself.
Where the property is located is another major factor. This helps investors determine whether real estate in an area is in progression or regression. But what exactly are these?
What is the Principle of Progression in Real Estate?
The value of a real estate property can increase significantly depending on its location. If it’s in a neighborhood that’s more desirable, it could be more valuable.
An example of what makes a neighborhood desirable is the developmental projects within that area. Neighborhoods with more expensive homes are also examples of real estate progression.
Over time, areas with access to more appealing developmental projects such as golf courses, retail stores, or are in close proximity to well-known schools, will have higher value properties.
These areas will be the ones most in demand. The more that area progresses, the higher the value of all properties will be in that area.
So, if you want to learn how to invest in real estate for passive income, you should also learn how to look for areas with real estate progression. On the other side, we have regression.
What is the Principle of Regression in Real Estate?
The principles of regression in real estate follow progression—but in reverse. With progression, even smaller homes can be valued higher if it’s surrounded by expensive ones.
But with regression, larger and more expensive homes can lose value when situated near less valuable properties. This also happens when you do too many high-end renovations.
Adding better features to your home, making it bigger, or adding more expensive interior designs should raise the property’s value.
But if neighboring homes can’t keep up, it might not get the return on investment you’d hoped for. One solution would be calculating the cap rate for the property you want to invest in.
The cap rate determines the ROI you can get based on the income you can get from the property and the cost. This can provide insight into which property can have higher returns.
Progression Vs Regression
With real estate progression, smaller, cheaper homes can be valued higher based on their neighboring properties. The opposite happens for real estate regression. When a home is more expensive than the neighborhood average, it may not yield the appreciation you wanted.
Why is Real Estate Progression Important?
If you want to invest in real estate or buy a turnkey property, it’s best to do your research into its surrounding area. If an area is in progression, you can get the following benefits.
Let’s use a hypothetical situation wherein you own an old home. It’s modest, in average condition, and has had minor updates in its lifetime.
But the surrounding neighborhood has larger, more modern, and aesthetically pleasing homes. This can positively affect the value of your own home.
Meanwhile, the value can get lowered if its located in an area with properties that have average or below-average values.
Finding the Right Real Estate to Invest in
If you’re out house hunting or trying to invest in real estate, you can use real estate progression to your advantage. And, you can easily do so within your allotted budget.
Find the best home you can afford in your budget that’s located in a more attractive neighborhood. Look for one surrounded by luscious and more expensive homes.
Investing in real estate this way gives your more benefits than spending that money on a large home in an area with regression.
Converting Property Use
Looking at areas in progression gives you the opportunity to take unique real estate investments such as converting a property’s use.
For example, you can convert an abandoned industrial warehouse into a more aesthetic and vibrant creative working space.
This can potentially attract good business and even positively affect the value of nearby properties and create a snowball effect.
Creating a Snowball Effect On Property Value
Renovations and developments in an area can help improve or revitalize it. This can have a snowball effect wherein the value brought by developments also affects neighboring properties.
It can encourage new investments, business, better quality tenants, and more. Ultimately, this can boost the average valuation in that area.
This can happen as sales prices for property go up, as well as lease prices, and tax prices. But these factors can also be affected by supply and demand and other economic shifts.
Path of Progress
The path of progress is a term thrown around when talking about the principles of progression. If an area is in progress, it doesn’t only affect the value of property in that area.
This positive growth can also lead to a number of benefits such as job growth, access to better infrastructure, services, and more.
Among the factors that contribute to the path of progress is access to better public transportation, government projects, and boosts in business in an area.
Real Estate Progression Examples
Let’s say you wanted to invest in a condo but you’re not how to go about it. The first thing you should do is prepare and do research on the property and its location.
If the condo unit you wanted to purchase is near a high-end neighborhood, has access to amenities, and has good transportation, then that’s probably a good choice even if the condominium itself doesn’t look that fancy.
The key thing is that the condo is located in a desirable neighborhood. Here, property values can be higher thanks to real estate progression.
Real estate progression helps you identify great investment opportunities. But before investing in a property, consider the following:
- Buying a smaller home in a neighborhood with more expensive homes boost its value.
- The location of a property is as, if not, more important than the property itself.
- Real estate progression can help appreciate the value of every property in an area.
- If a location has a good path of progress, buying real estate there is a good idea.
- Real estate progression can have a snowball effect on property value.
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