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Real estate is often said to be a good investment, because in most cases it appreciates over time. However, there are instances when a property can lose value. This is bad news if you’re still paying off a mortgage and planning to sell up, as you could end up losing a lot of money. However, there are solutions that help you to reduce your losses. This post delves more into some of the reasons a property might lose value and what you can do to combat this.
What Causes a Property to Depreciate?
Depreciation can occur for a variety of reasons. However, there are three main causes that property owners need to be most wary of.
Physical deterioration
If a property is not kept in good condition, it will lose value. The more major the wear and tear, the more your property will depreciate. Some of the problems that can devalue a home the most include foundations issues, roof issues, window/door damage, old faulty wiring, corroded plumbing and flood damage/mould growth.
Location factors
Sometimes a location can become less appealing due to recently occurring problems in the area. If an area has recently started to become affected by natural disasters, you could start to see properties losing value. A rising crime rate area could also cause properties to start falling. Recent undesirable developments such as a busy road or the expansion of an airport are also common culprits, while reduced job opportunities or education opportunities due to major local companies and schools closing can also lead to lower property prices.
Societal factors
Certain properties can also become less attractive over time as a result of changing trends and attitudes. Various property features have become dated over time including popcorn ceilings, glass block windows and floral wallpaper. There are also certain types of property that are no longer in demand such as large office buildings. This has led to such properties losing value.
What Can You Do To Combat Depreciation?
The market value of a property isn’t always something you can control. However, there may be cases where you can take measures to restore value or reap back some money lost. Below are just a few measures worth considering if your property has started to depreciate.
Invest in major improvements
There are many major improvements that can add value to a property. Big repairs such as replacing a damaged roof or re-wiring a home with old faulty electrics can help to boost a property’s value. Adding extra bedrooms can also increase a property’s value – this could be done through extensions or by converting unused spaces such as lofts and garages. Of course, when investing in such improvements, you need to make sure that the value added is more than the cost of the improvement – there’s no use in spending £60k on a loft conversion, only to add £40k worth of value. Investing in the right materials and relying on sweat equity is often key to making a return.
Explore tax deduction options
There are cases where depreciation can entitle property owners to tax deductions – which can help to reduce one’s losses. For example, rental property owners can often use depreciation to deduct a property’s purchase price and improvements costs from their tax returns. Working out how much tax dedications you are eligible for involves creating a depreciation schedule. You also need to take into account any earnings that your property is continuing to make. A financial advisor or accountant may be able to help you better understand how to calculate these tax deductions.
Sell and cut your losses
If a property is likely to continue to decrease in value, you need to consider whether it’s worth selling up now. There are cases where properties fall in value and then rise again – but predicting this isn’t always easy. Selling now could help you to reduce your losses. It isn’t easy to sell a depreciating property, but there are investors out there who are willing to buy such properties and put the work in to improve them. If you yourself don’t have the money to improve your property, selling may be the most practical solution.
Conclusion
In order to determine if your property is losing value, you will need to get it valued by an agent. It is worth getting two or three agents to value your property so that you can be certain that this is the widely agreed price. Agents may be able to recommend ways of improving your property to increase its value. If you don’t want to splash out money on improvements, consider whether you can take advantage of tax deductions or whether you are better off selling up.
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