Property depreciation is an occurrence that every investor should be aware of. After all, the reason you invested in the first place is likely so you could make a profit. If real estate prices in your area seem to be falling, you may need to take specific actions to ensure you handle your home depreciation correctly. For more insight into how you can protect your real estate investment, continue reading the following guide.
Reasons Why an Investment Property Loses Value
There are plenty of reasons behind value depreciation. Economic factors, both on a national and local scale, can lead to short and long term decreases in home prices. This is well evidenced within the Subprime Mortgage Crisis of 2007, when property values decreased sharply due to a multitude of factors.
Aside from the current state of the national economy, the area your property is situated in could be experiencing a significant downturn. Say, for instance, your investment property is in an area where the majority of residents work for a nearby hospital. Now, imagine if that hospital were to shut down or move to a different area.
You may no longer have a pool of nurses, doctors and other healthcare professionals within the area looking for a place to live. Due to this, there’s less competition and fewer interested buyers’, making it tougher to receive the price you were hoping for. Instances like this happen all the time throughout the country, along with rising crime rates, a decrease in local school rankings, newer homes being constructed next to older homes, etc.
How Decreasing Values May Impact You
Experiencing a drop in value for your investment properties is especially stressful if you’re in a position where you’d like to sell your property within the next few months. If you own a fixer-upper and are in the midst of some home improvement plans, you may want to hold off on completing any further projects unless you’re sure it’ll increase the immediate value of the property. It’s crucial you understand which home repairs are most likely to increase the sale price of your property or else you risk losing more money on improvements for a home that may not turn a profit.
If you got a mortgage on the property and are looking to refinance, getting approval could prove to be a challenge.
Making the Decision to Sell
After researching your options, you may conclude that it’s best to just cut your losses and sell your property to the highest bidder. Over the long term, this strategy might ultimately allow you to invest in properties with a much higher chance of appreciation. If you don’t see any end in sight regarding the decline in property values in your area, you can decide to accept a lower offer in an effort to expedite the sale. By appropriately pricing the property, you may have an easier time finding a buyer. You can also try selling your investment property through an online auction. Hubzu’s Signature Seller Auctions provides an easy to use marketing platform. It allows you to market your home to Hubzu’s 1.7+ million user base. Click here to learn more.
Waiting for the Property to Regain Value
On the other hand, you also have the option to see if your property can regain its value. When wondering whether you should sell the property or wait for it to regain value, consider the time and money you’ve spent fixing up this property, along with the potential it has in the long run.
For example, if you know the property is still in a desirable area with an amazing school district, it may be worthwhile to stick it out in the hopes of it regaining value. If you don’t think the property is worth the effort and would prefer to try your luck in the market, it may be best to simply sell the property.
Remember that real estate cycles are real and there’s always a light at the end of the tunnel. Despite the reason for a downturn, there are always methods to manage and get around property depreciation. It’s important that you continue to do your due diligence and always buy and sell at the right time.
For additional resources to help you navigate the current real estate market, please visit our COVID-19 resource page by clicking here.
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