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How To Calculate Real Estate Appreciation and Future Value – Montreal

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When buying a real estate investment in Montreal, your financial plan may require you to estimate the future value of the property based on land appreciation. Appreciation is an increase in the value of an asset over time, caused by factors like inflation, increasing demand, and improvements to the property. Projecting appreciation and future value can help you determine whether the investment fits your goals, or whether you are better off choosing a home in a different location. How To Calculate Real Estate Appreciation and Future Value – Montreal

How to calculate future value: 

Step 1: Find the current appreciation rate in your neighbourhood. 

To estimate the future value of your investment, you will need to know the average appreciation rate in your neighbourhood. Start by locating your neighbourhood on this list of average real estate prices and appreciation rates in Montreal. If you don’t see your borough listed, contact us directly with your request, or use Montreal’s average rate of 3% annually for condos, and 7% annually for single family homes.

Step 2: Find the future growth factor.

To calculate the future growth factor, use this formula:

Future growth = (1+ average annual appreciation rate) years 

Where years = the number of years you plan to hold onto the investment.

As an example, let’s take a condo for sale in Montreal’s Atwater Market (South West), listed at $300,000

  • The average appreciation rate in the South West is 6%
  • You plan on selling the investment after 10 years.
  • Future growth = (1+0.06)10
  • Future growth = 1.79

Step 3: Find the future value.

To find the future value, multiply the future growth factor by the property’s current value:

Future value = (Future growth factor) x (Current value) 

  • Future value = (1.79) x (300,000)
  • Future value = 537,000
  • In 10 years, your $300,000 condo in the Atwater Market will be worth $537,000

How to calculate appreciation: 

Now imagine a reverse scenario in which you are selling your home at a certain price, and would like to calculate whether your selling price matches the average appreciation rate in the your neighbourhood.

For example: 

  • You bought a home for $200,000, 5 years ago.
  • You are now selling the home for $250,000.
  • How much has your home appreciated since its purchase?

Finding the appreciation rate requires two simple formulas:

Step 1: Find the change in value:

Change in value = New value – Old value

  • Change in value = $250,000 – $200,000
  • Change in value = $50,000

Step 2: Find the percent of change in value

Percent of change in value = Change in value ÷ Old value

  • Percent of change in value = $50,000 / $200,000
  • Change in value = 0.25 or 25%
  • Your real estate investment has appreciated by 25% since its purchase.

Related: Buying a Rental Investment in Montreal >>

Keep in mind that average appreciate rates fluctuate through the years, so projections of real estate value will never be completely accurate. However, they can give you a broad idea about your future profit potential, which will help you make smart decisions when it comes to your real estate investment.

 

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