For most people, a home purchase is the biggest single investment they’ll ever make, so it’s natural to hope for some return on that investment or appreciation. When you buy a home, your goal should be that it’s worth more than you paid for it by the time you’re ready to sell it. Given the unpredictable nature of the real estate market, here are some things to consider:
Don’t overspend and buy a home you can’t afford now.
Just because you’re convinced that the house you’re considering will appreciate doesn’t mean you should buy it if it’s outside your budget; stick to your budget. That way, you can enjoy your home without the stress of too-high mortgage payments. You will want to maintain the same level of lifestyle you are currently living. If you’re buying a home that will be your primary residence, don’t worry too much about home appreciation, since it’s mostly beyond your control anyway.
The difference between home appreciation and inflation.
Is it appreciation or inflation? Home values don’t usually appreciate above the rate of inflation, so when you sell you’re not getting much in the way of real gains. When available, check inflation-adjusted home value trends to make sure you’re getting a clear picture of home appreciation.
Making upgrades before selling.
If your house is already quite old, making expensive upgrades may not be worth the investment unless you want them for yourself. Anyone who would buy your home could afford to—and probably would—make major changes, so don’t bother making them yourself. It all comes down to location, location, location! Sometimes, a house will appreciate even if it’s falling down if it’s in the right neighborhood. Buyers will often look past the house itself saving you the money and effort of making upgrades to attract buyers.
Don’t flip out!
Home flipping by buying a run-down property and then putting a lot of work and money into it in the hopes of getting a much higher price than you paid works better on reality TV than it does in real life. In general it’s only a good idea to buy a fixer-upper because you want to put the work into the home for your own enjoyment, not because you expect big returns on your labor.
Expect the unexpected
Whether your home will appreciate over time is mostly out of your control.
New schools in the neighborhood, job growth in your area, increased demand for homes in your area or if "urban renewal" of lower class neighborhoods that attracts yuppie tenants, etc. could raise the value of your home.
Consequently, there are some unexpected things could decrease the value of your home such as destructive weather events, crime sprees, school closures, job loss in your area, foreclosures, vacant homes, ugly new development, increase in local supply of homes, or a spike in property tax rates.
Be sure you know where you’ll go if you sell.
When you sell your home, you’ll have to find somewhere else to live. If you want to stay in the same area increased prices may mean that you’ll be paying an even higher price to get a bigger home in the same area. Before selling a home in a tight real estate market, it’s wise to add a contingency to the contract that stipulates you won’t have to go through with the sale if you can’t find a new home to buy.
Some factors are just out of our control. It’s easy to forget that we all make decisions based on imperfect information and situations.