To depreciate is to lose value for something. Depreciation is the act of losing worth.
Connecting with real estate, Property depreciation can be both an accounting method typically used to assess the decrease of value of something stretched over time in order to reduce taxable income without reducing cash, or the simple fact of an asset losing its value due to time and usage.
Was that vague? Well, then let’s go deep and get metaphysical here: only change is constant in life. That means that everything is changing from moment to moment. Could you say that a car you bought for $100,000 10 years ago, a vehicle that stayed days and days in direct sunlight, endured rain, a few bumps, plus extensive family use and a lot of miles of usage … is still worth $100,000?
Of course not.
That’s why you see a lot of collectors that do not take toys out of their box. It’s a way to conserve value; the moment the toy is out of the box, the moment the car is out of the dealership, the moment the house gets build… the property depreciation clock starts to run. To some extent, maintenance may partially arrest or offset wear and deterioration but - because defining “value” requires a comprehensive approach - technical obsolescence of its materials and technology might also come into play.
In the end, property depreciation and depreciation as a whole is the culmination of the understanding that the more you use things, the more they lose their worth. In a capitalist society where productivity is everything, it might be a harsh concept, but a very necessary one. Now - since not all things are worth the same and some things take its toll earlier (or later) than others – property depreciation is to be read as more of a concept or convention, than a pragmatic universal calculation. Property depreciation needs to be calculated considering a lot of factors. In real estate and elsewhere. But the main idea is thinking about the asset’s usage lifespan and calculating its curve of value throughout it.
Real Estate Tip:
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