If land appreciates...
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Buildings depreciate for tax and accounting purposes. However, from an investment point of view it's simply not true. How else can those 100+ year old terrace houses be worth anything if only land appreciates? Property is more than just a formula...
I wouldn't take it as gospel. I'd look at what's in demand for the area (whether it be houses or units) and consider what factors are going to drive future growth. I wouldn't dismiss a property simply because it's either a unit or a house - I'd be looking at other factors in determining whether or not it's a good deal for me.
Cheers
Jamie
Because there are so many more of them, and houses are constantly being replaced with blocks of apartments.
At least I've never read about somebody buying up blocks of units and building a federation brick and tile house on it instead.
Beat me to it. The rule of 'land appreciates buildings depreciate' is for tax purposes, and does not necessarily represent the real world.
The function of a unit doesn't reduce if maintained properly, and renovated at sensible intervals, and that is what tenants and future buyers are really paying for.
My entire IP portfolio is units, and I'm very happy with their performance.
Absolutely correct. But how long does it take for this to happen? Also, maintenance is not depreciation.
Units are build when so many people want to live in one place (demand) pushes up price of that piece of land. Each unit can be seen as owning a little bit of the land underneath. Its just a higher density use than a freestanding house. Saying units can't grow is silly. Would you want to own a piece of real estate in central New York City, Tokyo or London? I would, but its all gonna be units because the land is way too valuable for somone to put a house and backyard on it. Hence we go up into the sky to get the location we want. The land underneath hasn't dissapeared.
Time and weather will reduce all properties to a pile of dust (metaphorically at least). The land will still be the same.
Depreciation is an acknowledgement that after 40 years the house needs to be rebuilt. If that money was spent on maintenance...
I suspect we're talking about slightly different things.
Yes, eventually time and weather will reduce a building to dust. But how long will this take? There are plenty of homes around that are older than 40 years, and many of these are worth more now than when they were new. Increasing cost of replacement holds up values, as does the function of the property itself.
If what you are saying is correct, then any home over 40 years old could be bought for land value alone.
We're talking about the generalisation "buildings depreciate, land appreciates".
Land does not weather or get old (unless possibly farming land or land on coastal regions that are eroding). At some age any property that has had no maintenance will be borderline for demolition because the cost to repair it will exceed the cost to build again.
Land never needs to be built again.
Land does not weather or get old (unless possibly farming land or land on coastal regions that are eroding). At some age any property that has had no maintenance will be borderline for demolition because the cost to repair it will exceed the cost to build again.
Land never needs to be built again.
Getting old is not the same as depreciating.
Generally, units are cheaper to buy, which means they are affordable to more people, more often.
The other thing is fear; many people feel comfortable taking on a smaller debt (per property) of, say; $250k with a 6% yield, rather than $600k with a 6% yield
Personally, I am like this to a degree. However, I would be happy to spend a million plus on one property, but the yield would need to be very, very high - 10% region for sure.
