How to Calculate Depreciation Of Property
A building or constructed structure is always deducting off useful life which is usually estimated to be 60 years straight after it’s construction meanwhile for the land the property sits on appreciates every day. The age of the property or age of construction, is a key factor in deciding the depreciation of a property.
Location plays an important role in determining appreciation or depreciation value.
How To Calculate Depreciation Of Property
How to calculate depreciation of property. Depreciation is arrived at through the following formula:
I bought a house after 10 years of construction.
A house life time is basically averaged at 60 years.
Consider the market price of a similar building around let’s assume a recent similar house was sold at $2000.
Formula: (number of years after construction / Total useful age of the building)*market price
Depreciation value= (10/60)*2000
(1/6)*$2000 is your depreciation value.
Factors to calculate depreciation of property
Location.The location you select for a home you own will affect current property value, appreciation on land. You need to put in place of where your home is located in proximity with other social facilities like shopping, entertainment and others.
Scarcity of land.
There are areas where the development land is so scarce and one has to buy a home to start up renovations. If that area has limited land the prices of the home will tend to spike compared to a home surrounded by free unused land. .
Emotional attachment.Some homes are bought back by former land owners because of the emotional connect. Most of the people feel success when emotionally connected with property. .
Market condition.Some markets are better in prices compared to others, urban area buildings are worth more than developing areas, so when one decides to sell a home the market price will hold up value for his sale. .
Zoning and Taxes.Some zones are less taxed compared to developing areas. A building may be over taxed in a zone because the policy developments may hinder the age of the building due to a reduced useful life. .
Size.The size of the property plays a depreciation role. The bigger the house the less rate of depreciation. .
Age and condition.The less the remaining useful age, the more depreciation to expect. .
Wear and tear.Buildings are built under different materials. The wooden, metallic, bricks and sand. These materials cause different depreciation factors. .
Is a house a depreciating asset?
The physical structure of the house that is built or bought, is a depreciating asset, as it is subject to wear and tear and will fall apart over time.
The only thing on the property that actually appreciates is the land, because it is the only thing that cannot be replaced and it is in higher demand. This fact justifies a greater expense for new construction over existing homes.
What Causes a Home's Value to Depreciate?
High Crime rate.
There areas where the security is not good enough. These areas tend to attract a less population due to the fear that is inflicted in them. No one would want to invest in a property that is going to take long without tenants. Value to depreciate due to less number of tenants.
High Property taxes.
It’s important to know how the country charges percentage on property taxes. Some countries in Africa would impose less taxes on property. Having power to purchase a building in Virginia is completely taxable while in Uganda it’s not currently. Considering where you are shall decide your running policy.
Lack of a good maintenance on property.
A 1 percent decline in a city’s population can bring down house prices. The longer the rooms stay vacant, the more depreciation. A decline in employment in the city can also dramatically reduce home values, according to the study.
The closer to urban cities the higher the rent and population size. The number of people finding opportunities normally desire accommodation closer. So valuing the population incomes and analyzing how much the people could afford to pay for rent gives you a better picture and plan on what to construct.