The most common way for real estateto profit is to appreciate—that is, to increase in value. This is accomplished in various ways for various types of property, but it is only realized in one way: by selling. However, there are several ways to increase your return on investment on a property. If you borrowed money to purchase the property, one option is to refinance the loan at a lower interest rate. This reduces your cost basis for the property, increasing the amount you receive from it.

Of course, the most obvious source of appreciation for undeveloped land is development. Land outside city limits becomes increasingly valuable as cities grow due to the possibility of developers purchasing it. When developers construct houses or commercial buildings, the value of those structures rises even further.

Land appreciation can also result from the discovery of valuable minerals or other commodities, provided the buyer owns the rights to them. Although striking oil is an extreme example, appreciation can also come from gravel deposits, trees, and other natural resources.

When it comes to residential properties, location is frequently the most important factor in appreciation. As the neighborhood around a home evolves, adding transit routes, schools, shopping centers, playgrounds, and other amenities, the value of the home rises. Of course, this trend can also work in the opposite direction, with home values falling as a neighborhood deteriorates.

Home improvements can also increase the value of a home. Adding an extra bathroom, heating a garage, and remodeling a kitchen with cutting-edge appliances are just a few ways a homeowner can try to increase the value of their home.