What Drives Property Values? | Property Management Blog

What Makes Property Value Increase Over Time?

When it comes to property management and real estate investing, you want to make sure you have a sound investment. We recently talked about how you can determine if a particular property will make a good investment, but mostly touched on financial calculations you can make. What also matters is the economics behind the property, specifically the property value. Property value is essential in determining if a particular investment is a wise decision, and understanding how property value is influenced will help you make this determination. Here are several main factors that contribute to affecting how much money a property in a particular area is worth. The Home Itself All homes are judged in comparison to all other homes like them in a given area. Thus, determining property value depends largely on how well a home stacks up compared to other, similar homes in the neighborhood. For example, a 3/1 is at a disadvantage on a street full of 3/2 homes. A 4/2 with a big, fenced-in backyard has advantages over a 4/2 on a small lot with a small or nonexistent yard. A 3/2 with a renovated interior is viewed as better than a 3/2 (or even a 4/2) with a sub-par interior. Performing a comparative market analysis of a given property will help you make this evaluation. Commercial Property Outside of the home, property values are partially determined by economic opportunities available in the surrounding area. In urban or suburban environments, this means commercial businesses. A neighborhood that is in close proximity to a thriving downtown entertainment district, for example, will enjoy a boost in the value of its homes compared to a neighborhood that is isolated. This is also why you see property values go up shortly after a major business moves nearby. Economic development in an area drives up property value for a variety of reasons. School Districts If you’ve tried to buy a home in an area that has a high-performing school district, you know exactly how much a good school can drive up property values. Families who have the freedom to choose their neighborhoods do so on the basis of school districts above any other single factor. That single factor alone is what drives up property values for Birmingham suburbs like Vestavia and Homewood and Hoover; their schools are thought to be superior to Birmingham city schools, which is why families who can afford to live outside of the city often choose to do so. Proximity to the Urban Core Finally, one major factor is how close the area is to the urban core. Generally speaking, the closer the home is to the city, the more expensive it will be per square foot. Note that this only applies to areas outside of the city limits; Birmingham city homes are often cheaper than homes in the immediate suburbs. But it’s also why you can get more home for your money in outlying stretches of Hoover, compared to comparable homes in Vestavia, Mountain Brook, and Homewood. You’re trading convenience for size and per-square-foot cost. There are other factors that play a role in property value. Contact us for more information on finding a smart investment in the Birmingham area.