4 Main Factors to Consider when Buying a Home for Long Term Value and Appreciation

There are four main factors that determine the current and long term value of a home. Those factors are:

Location
Lot
Floor Plan
Finishes

If money were no object, you'd simply buy a home that excelled in each of these categories. In reality, buying a home involves prioritizing certain factors over others.

Recognizing which factors are most important for long term value will help you buy a home that is most likely to:

Appreciate in value
Accommodate improvements you'd like to make in the future

1. Location

A great location is a neighborhood or part of town that you and plenty of other people love now and will continue to love in the future.

Factors that make locations valuable:

An abundance of quality, well kept homes
An easy commute to one or more major job centers
Being close to amenities like shops, restaurants, beaches and parks
Having attractive surroundings and views
Access to desirable schools
Local residents care about each other and the community
It's safe with low property crime

Property values go up in great locations when the economy is healthy and hold steady when the economy slows.

Values rise even faster in great neighborhoods when it's hard or impossible to add additional housing supply. This is why homes in most Seattle neighborhoods and other established areas are more likely to appreciate in value than homes in areas where it's easier to add new housing.

2. Lot

You've heard the line: "Buy the worst house in the best neighborhood." However, if the lot is also the worst in the neighborhood, this can be terrible advice.

Better advice would be: "Buy the worst house on a great lot in the best neighborhood."

Lot quality is most important when you're buying a home in a city or neighborhood with a wide variety of lot sizes. Homes on lots that are too small, oddly shaped or poorly positioned have far less long term value than homes on good lots.

What to look for in a lot:

Size - The larger the better, especially if adding onto the existing home in the future is important. The lot needs to be big enough to accommodate a home of ideal size for the neighborhood because eventually you or someone else is going to want to build that ideal home.
Street - Quiet, well kept, flat, wide and easy to park are qualities that all add value. Avoid busy streets, they put significant strain on long term value.
Yard - The more usable the better. The shape of the lot and location of the home on the lot greatly influences how usable the yard is.
Flat - Flat or gentle slopes are ideal, avoid steep slopes and homes that have lots of entry stairs.
Setting - The surrounding properties should be as attractive as possible, even better if the lot is on a green belt.
Views - Mountain, lake, city and territorial views all add value, especially if the majority of the lot itself is relatively flat.
Sunlight - Having good exposure to sunlight from the south & west is ideal.

More about lot sizes for new homes in Seattle

A large portion of Seattle homes are built on 5,000 square foot lots that are 50' wide by 100' deep.
Most new homes in Seattle would fit on a 5,000 sqft lot. It's not overly spacious, but it works.
A 4,000 square foot lot can work for a new home but there won't be much yard, especially if the house is large or there's a detached garage.
Anything under 4,000 square feet is going to limit the size of a new single family home.
Lots 7,000 square feet and up are pretty special. Land in Seattle is scarce and large lots in good neighborhoods are very valuable.

In summary: When buying a home for the long term, a home on an above average sized lot, on a quiet street with appealing surroundings is your best bet, even if the house isn't as up-to-date as others you're considering.

If long term value is a priority, remember: It's land that appreciates over time, not structures.

3. Floor Plan

The general layout and size of the house is the next most important factor. If a house is older but has a good floor plan, you (or the next owner) will be able to renovate and make it feel new without having to do major construction. Good floor plans have tremendous long term value.

What to look for in a good floor plan:

The more square footage the better. In general, homes go up in value with each additional sqft up until about 4,000 sqft where the added size starts to have diminishing returns.
Layouts where most of the square footage is on the main and second floors. Homes with more square footage on the main and second floors are far more valuable than homes with large portions of their square footage in the basement or on a third floor up.
Look for homes with large, open layouts of the main gathering areas. Ideal floor plans have large kitchens, family/living rooms and dining areas, all connected together comfortably
The main gathering areas should flow and connect with the back yard. Ideally the kitchen or family/living room has lots of windows and large doors out the backyard
The best floor plans an ample number of bedrooms and bathrooms on the same floor. Exactly how many bedrooms and bathrooms is ideal varies by home size but a primary bedroom (one with an ensuite bathroom and large closet) plus 2 or 3 additional bedrooms and an additional full-bathroom, all on the same floor is very valuable.
Look for 9 foot+ ceilings. 8 foot high ceilings are OK too in most situations. Anything under 8 feet may limit the long term value of the home. Anything over 9 feet is great but of limited additional value.

4. Finishes

From a long-term value standpoint, the current finishes of the home are the lowest priority because they can be improved later.

Finishes like appliances, cabinets, countertops, light fixtures, flooring and lose value as they age and as tastes change. Finishes can always be updated later so if you have to sacrifice something when making a buying decision, it should be the current quality of the finishes.

Some finishes have both utility and cosmetic value, for example:

New / efficient HVAC systems
High quality double pane windows
New roofs.
Updated electrical and plumbing

These items are indeed valuable which is why people often update these items when getting ready to sell their home. Just remember, high quality and long lasting beats trendy or cutting-edge when it comes to re-sale value.

Summary

Ideally, you'll find a home with the right location, lot, floor plan and finishes in your price range. If you find that house you'll probably be buying it.

If you have to prioritize and long term value is important, remember: LLFF, in that order and down the road you'll be glad you did.