I’m going to try a new feature here at the BiggerPockets Blog: Real Estate Vocabulary. This feature will look at different concepts in real estate, and explain what they are and why they’re important. The first concept we’re going to cover is Economic Obsolescence.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Economic Obsolescence: Definition
Otherwise known as Social Obsolescence, economic obsolescence is when the value of a property decreases due to external factors in the neighborhood or immediate area. For example, if the local airport adds a new runway so upon takeoff and landing, airplanes fly directly over your home, the value of your property is likely to fall.
Other possible causes include changes in zoning, recession, adverse traffic changes, freeway construction too close to the property, and loss of major area employers.
The key here is that these changes are irremediable; no matter what you do to your property, these outside changes negatively affect your property value. Appraisers consider economic obsolescence when determining the value of a property.
This is one of the factors that the online home value engines often fail to, or simply cannot consider, when evaluating a property.