Understanding the Impact of Progression and Regression on Real Estate Investments

By: Elixir Real Estate Inc

Understanding the Impact of Progression and Regression on Real Estate Investments

Tags: Real estate investments, Progression and regression, Investment analysis, Market trends, Property valuation

In this writing, we will discuss two crucial concepts for Real Estate Investing, the Principle of Progression and Regression. These two make a lot of difference in the outcome of our investment. Let us understand how. 

Principle of Progression 
This principle of Progression states that the presence of superior homes around a property increases the property's value. Essentially the thumb rule of investment should be to buy best property type/style you can afford in your budget in the best neighbourhood.

To clarify, suppose the median sold price of detached properties in a community is $800,000. And you purchase a property which need updates and since it requires some work, you get it at a bargain price of $725,000. This would be considered a great investment, the fact remains that after doing the necessary remodelling, the property would command its value. The reason is that the neighbourhood homes are selling well and are in excellent condition. 

In Greater Toronto Area, you can find various pockets, mainly adjacent to the lake like the Rosebank community in Pickering, Lorne Park & Mineola communities in Mississauga, Bronte East and Bronte West communities in Oakville, Shoreacres & Roseland communities in Burlington, Newtonbrook East & St Andrew Windfields in Central Toronto, Princess Rosethorn in Toronto West etc.

These are some of the great locations within the GTA, and you can find many more where the neighbourhood is premium, and because of this principle of Progression, the real estate will multiply its worth in the coming years.

In these communities, since real estate is in demand for custom home development, people want to get into these upscale communities and build their custom homes. When you buy an old detached house on a decent 60-80 ft frontage lot in these locations, your real estate will automatically appreciate at a reasonable rate by the principle of Progression. The reason is that new money and investments are being pumped into these neighbourhoods, and with newer multi-million detached homes coming up in the area.

Principle of Regression
The opposite is the principle of Regression which states that the presence of inferior real estate around a property will bring the value down. If a subdivision is going through a decline phase and the original homeowners are moving out. No one is maintaining or taking care of the properties in the neighbourhood. In such neighbourhood, if you pay a premium price for a very well-kept home, it will not hold its value. The value will be pulled down due to unkempt and non-updated properties around the subject. This is why when we purchase Real Estate, we need to review the subject, and it is equally important to get into a decent neighbourhood or subdivision.

Let's take another example to make this Regression principle clearer to you. Suppose the subject property is a newer double garage detached 2-storey home with four bedrooms on a 50 ft lot. However, in the back of the subject property are 3-storey townhomes built on 18 ft lots.So, in the subject, even though it is the highest property type, the homes in the back are pulling it down. Property in the backyard will always look at 3-5 townhomes and that too 3-storey ones which are towering at the back. This takes away the charm of the detached property, and the principle of Regression makes the detached home less appealing. 


At the same time, if you are reviewing or investing in those 3-storey townhomes, the principle of Progression will work as a detached property in their back will make them look more open with an inviting backyard looking at just one detached property. 

The learning and the defining rule is that when we are buying a particular property type, we should ensure as best we can that properties which are fronting or backing into the property we are considering buying are of similar or of higher property type than the subject. This is for making sure we do well in the long run in terms of appreciation and smoothness at the time of selling.

These principles advise that when considering real estate investment, we should get into a subdivision with homogeneous similar-type properties. As another example, you are trying to buy a 2-storey freehold townhome, and at the end of the street, there is a mid-rise condo that takes away the charm of the asset you are trying to purchase. Therefore, it would be best if you look for another option. 

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.

Mudit Mehta 
Broker of Record
Off: 416-816-6001 | info@elixirrealestate.ca