Forced appreciation: What does it really mean?

[Katie Lea]

Hi everyone, I wrote this email to Brandon Turner and got an auto message back so I thought I would copy and paste to the group and see if I could get any help:

Here's the message I sent:

I am really getting interested in real estate! I have 4 SFR's (which I had no clue that were really investments until a couple of weeks ago). Oddly, it was just something that our financial advisor said would be something we should do about 12 years ago and we just have continued to add to our SFR's as we want to ever since. Until I found BP and the Pro account through one of your webinars, I never knew there were numbers that actually calculate a good deal. It's just amazing that we went this long and had no clue what we had.

ANYWAY - I am reading the article that you wrote on "7 Years to 7 Figures" and am trying to figure out how and what forced appreciate is. When I search the words in BP I can't find anything and wondered how to get 10% in the first year. If you are looking for podcasts or webinars to do, or just a simple email back to me about this, I would really appreciate it. -Katie

[Frank Wong]

Hello Katie,

An important thing to know about Force Appreciation.  You have to make sure the market place has comparable sales that have closed to support your renovations and improvements.  What do I mean?

Example. The wrong way. Oh Great! Let's renovate the kitchen new granite new baths new floors. My property will be worth so much more. Doesn't work exactly like this. You want to make sure your renovations don't cost more than what the ARV (After Repair Value) is.

Say there are comps in the area of renovated homes that have sold for $200k.  Those houses have updated kitchens baths and floors.  Your house is all original and needs those updates.  You purchased a house for 110k.  The renovations will cost you $45k to do those updates.  Now your $110k house + $45k is now worth $200k and your cost to do this is $155k.  You made $45k in force appreciation.