Today, we are going to learn about the different types of appreciation and how you can split the profits.
Raising private money becomes much easier when your financial friends get more choices.
There are five types of appreciation:
Found, Forced, Phased, Inflated, Passive
I dive deeper into how to use these in my Private Money Crash Course which you can find at PrivateMoneyCrashCourse.com
It’s important to note that we can only control three of the five. The two we cannot control are inflated and passive.
Inflated Appreciation is what many people refer to when they mention hyperinflation. When supply and demand are not balanced, appreciation will increase or decrease.
When there is more demand then there is inventory “inflated appreciation” occurs. That’s what many markets are experiencing now across the US.
Be very careful in basing investor returns or gains on the inflated appreciation.
Passive Appreciation is what occurs with the ebb and flow of market conditions. It’s what's derived from timeline trends. There is nothing you can do to improve it, (besides maintaining the asset), it “happens”.
Found Appreciation comes from undiscovered opportunity. When I discuss focusing on doing deals when a property is not for sale, this is what I mean.
Found appreciation happens when you negotiate a deal worth $200k down to $150k.
Forced Appreciation happens once improvements or repairs increase the income or resale value.
House-flipping is an example of forced appreciation as is apartment syndication.
The net income of an income property determines its value.
Phased Appreciation occurs when the value increases over time after finishing value-added improvements.
Example: Let's say you buy an asset with a buildable vacant lot attached. Later, you build more rental units on that lot which increases its value.
Another Example: You buy an existing building and then add more rentable spaces.
In the northeast, many old factories are being converted to high-end rental housing. This is another example of phased appreciation.
In the south, larger homes are being converted to ALF's (Assisted Living Facilities). Once converted the value of the home skyrockets.
The bottom line is that the value changes over time. You can use these future values as profits that you can share with your financial friends.
Take the time to educate the prospect about these types of appreciation.
Private money investors often focus less on what their return will be and more on where it will come from.
When a potential investor understands how the deal will earn its profit, “yes” is easier to achieve.