7 Reasons Real Estate Investment Property Values Drop

By Author: James Kobzeff
Total Articles: 44
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Wealth is the primary reason why people invest in real estate. Few, if any, ever engage in real estate investing except to make money, and no one would make the investment in real estate unless it was profitable.

One of the advantages of owning investment property is that income generated from rent can be quite considerable if a property is bought and managed correctly. If a real estate investor doesn't overpay for a property, keeps expenses down, the apartments rented, and the building well maintained, a real estate investment can generally make the investor money even while the investor sleeps!

Notwithstanding, there are there factors that can cause a real estate investment to lose value. Moreover, not unlike a perfect storm of colliding fronts, it can have a drastic effect upon a rental income property's ability to generate profitability, despite the investor's efforts.

In this article, we will look at the seven worst contributors to the deterioration of rental property value.

1. Neighborhood Decline

The community surrounding the income property can change in a variety of ways that adversely ...
... affect your income property. Increasing vacancy, for instance, can lead to reduced rents, which in turn means reduced maintenance causing building deterioration, in turn causing the whole neighborhood to slip into decline and therein triggering a domino effect that simply compounds the problem. The nearby construction of facilities such as sewer treatment plants and airports will also likely have an adverse effect on the area. Also, perhaps more subtle and slower in coming, is a decline due to increased crime, perhaps resulting from an adjoining neighborhood spill over.

2. Impact of Adverse Infrastructure

Being located directly under the flight path of aircraft, for example, can have a negative impact on a property's ability to attract (or keep) tenants. Likewise, construction of a major highway or intersection can limit access to the property, and cause noise and dirt by the construction to drive tenants out. Perhaps the result may be an increase in your investment real estate value, but construction can take up to a year or more and during that time you can expect your real estate investment value to drop.

3. Controls and Regulations

Changes in governmental controls and regulations such as zoning can adversely impact real estate investment property. Real estate investors that purchase raw land for development, for instance, can see their plans grind to a halt because of a building moratorium or anti-development sentiment. All of which, of course, results in a plummeting value.

4. Wear and Tear

Whether its air and heating equipment, driveway surface, electrical wiring, hot water heaters and boilers, roofing structure, plumbing or paint, sooner or later it will require maintenance and/or replacement. If not properly maintained, the value of the investment real estate is reduced by the economic obsolescence (out-of-date) items.

5. Supply and Demand

Two major factors of supply and demand causes real estate values to go down: overbuilt and tight money. Overbuilt is straightforward. With multifamily property, for instance, overbuilt would imply that there are many more apartment units available to rent than there are tenants to rent the units. In this case, when new construction gluts and an overbuilt situation occur, the market can decrease quickly and stay down for a long time. Tight money means less availability of long-term financing from lenders and therefore less qualified buyers for your rental property.

6. Lack of Proper Maintenance

A run-down property in the neighborhood, if left unchecked, could drive down the values of all adjoining properties. A deteriorating property, whatever the reason, will have an adverse affect on your real estate investment.

7. Pressure to Sell

Highly motivated sellers may reduce a property to a bargain basement prices and smart investors watch for property owners who must sell to take advantage of the owner's strong motivation to unload the property. Always try to avoid ever reaching the moment when you are forced to sell.

About the Author
James Kobzeff is the developer of ProAPOD - proven real estate investing software since 2000. Create an APOD in minutes! Go to => www.proapod.com

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