APPRECIATION RETURN

This is an excrept from the e-book Real Estate Investment Mathematics. The appreciation return, or simply appreciation, measures the percent change in the value of a property over the selected period (quarter, year, holding period, etc). This may be also referred to as capital appreciation.

This is one of the two components that make up the total property return in the case of an income-procucing property. In such a case the other component is the income return, which is estimated as the so called overall capitalization rate.  

The one-period appreciation (AR) of the value of a property for year t, AR(t), is given by the following formula:

 

AR(t) = (V_t– V_t-1) / V_t     (6.1)

orequivalently

AR(t) = (V_t  /  V_t-1) -1      (6.2)        

 

Where

V_t                     =Property market value at time t

V_t-1                   =Property market value in the previous period t-1 

 

You can use either of the twoformulas above, as they will produce the same result.