How to Calculate Appreciation

by C. Taylor
Real estate is typically considered an appreciable asset.

Appreciation occurs when an asset or investment increases in value. Real estate is a common example of an appreciable asset for which considerable data is available. If you already know the average appreciation rate, you can estimate an asset's future value using its current value. Likewise, if you know the past and present values of an asset, you can calculate its average appreciation.

Calculation of Appreciated Value

Add 1 to the appreciation rate, expressed as a decimal. As an example, for an 8 percent annual appreciation rate, add 1 to 0.08 to get 1.08.

Raise the result to the nth value, where "n" is the number of projected years. In the example, to calculate the appreciated value five years in the future, raise 1.08 to the 5th power -- multiply 1.08 by itself five times. The result for this example is is 1.47.

Multiply this figure by the current value of the asset to calculate its appreciated value. Continuing with the example, multiply the current $150,000 value by 1.47 to calculate its appreciated value of $220,500. This would be the value of the asset after five years of appreciation at 8 percent a year.

Calculate Average Appreciation Rate

Divide the current value by the past value. Continuing with the example, if your house is now worth $220,500, divide $220,500 by the original $150,000 value to calculate a factor of 1.47. The house is now worth 1.47 times as much as it was worth five years ago.

Take the nth-root of the result, where "n" is the number of years between the two appraisals. In the example, taking the 5th root of 1.47 leaves you with an average annual factor of 1.08.

Subtract 1 from the result to calculate the appreciation rate in decimal format. In the example, 1 minus 1.08 calculates the average appreciate rate of 0.08, or 8 percent. Your house's value has gone up 8 percent a year for five years.

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