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.

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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)

or equivalently

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 two formulas above, as they will produce the same result.