Which principle of value is considered when assessing the potential returns on an investment over time?

The principle of increasing and decreasing returns is particularly relevant when assessing the potential returns on an investment over time. This concept recognizes that the value of an investment may rise or fall based on the additional investments made into the property and how those investments impact its overall performance.

Increasing returns occur when additional investments yield greater returns than the initial outlay, often leading to increased value for the property. Conversely, decreasing returns may be observed when further investment provides diminishing returns, indicating that additional financial input does not significantly enhance the property’s value or income potential. Understanding this principle allows appraisers and assessors to better evaluate investment opportunities and predict future value trends based on historical performance and projected returns.

When evaluating properties, using this principle helps in determining whether a property is likely to appreciate due to effective management or improvements, or whether it might lose value if additional investment doesn’t result in proportional returns. This understanding is pivotal for making informed decisions related to property value assessments and investment strategies.