When it comes to increasing the value of your property, there are basically only two ways:

Forced Appreciation and Demand Appreciation

Some people add another one called Inflation Appreciation but this is considered a long term event, that most Investors and Buyers of small income properties tend to ignore.

Forced Appreciation is the increased in value due to raising the rents. This can be accomplished by three ways. Fixing up or upgrading and remodeling a unit or building, so that you can charge a higher rental.

or, Buying a structure that has low rental rates to begin with and bring them up the current market rates, or just raising the rents on a current property you may own. As you know, the higher the rents are for a building, the more attractive it is to a potential buyer, and thus a higher price paid.

Now let’s show the effects of raising the rental rates on a property. As you may have already learned in other parts of this web site, that most Investors value a property by using either a Gross Rental Multiplier (GRM) and or a Capitalization Rate method (Cap rate).

By using a GRM, which is the value of the property as a multiple of its annual rents, we can calculate the effects of raising the rents. Say a property has three units and each one rents for $800.00 per month. That’s 3 x 800 = $2400 per month, times 12 months equals $28,800 annual rental income.

Now say that we know the market GRM for this area is 8.75 or that you just bought the property and the GRM calculation is 8.75. So the calculation of value would be GRM x Annual Rents = Estimated Value or $252,000 for this example.

If you raised the rents to $850 per month, which brings in $30,600 annually. Plug the new rental rate into the formula and we get a value of $267,750.

Wow… you just increased the value of the property by $15,750 or 6%

If your in a market that has an annual appreciation rate of say 5%, then you just increased the value of your property by over 10% (the annual appreciation plus the new increase in value would equal 11%).

Ok, now let’s recap, (See THE BENEFITS OF BUYING page)

I could buy a triplex like the example above or I could buy a single family house and put some renters into it. The triplex just went up at least 6% in value, while the single family home is dropping in value (as far as using 2007 and 2008 data), plus its doesn’t matter how much I raise the rents on the single family home as the value is determined strictly by the local comparable sales of other single family homes within the same neighborhood and NOT BY ITS RENTAL INCOME.

Didn't I tell you the best way to wealth is buying

small income property investments !

AND, just think, here in the San Francisco Bay Area with rental rates for a 3 bedroom 2 bath triplex going for $1800-$2500 per unit. A simple increase in monthly rents of just $100 can add approximately $32,000 in increased value. Not bad for a slow market.

Demand Appreciation is the increase in value due to a local economy which has a demand for housing that exceeds the supply and thus forcing prices up.

This has been the big factor here in the San Francisco Bay Area, with little land left to be built upon and more people moving into the area then leaving. The prices of homes and multi-family structures have gone up for many years now.

Many Investors look for areas of great demand and rely on "Forced Appreciation" for their profits. Areas like Aspen Colorado, Malibu California, Seattle Washington and other places, have enjoy great rates of appreciation even in slow market conditions due to demand out stripping supply.

When you have both kinds of Appreciation working for you, it doesn’t take long to see the benefits of investing in small income properties.