Land Appreciates and Houses Depreciate: Fact or Fiction?

Land Appreciates and Houses Depreciate’ is a ‘golden rule” statement often quoted by investors and experts in the property market. If I had a dollar for every time I have read or heard that statement I would be very happy with the increase in my cash flow!

So if you are an investor who believes this rule how does it change your thinking when looking for an investment property? Does it limit you to certain types of properties and perhaps exclude you looking at all the investment opportunities that are out there in the market? I commonly hear from potential investors that they only want to look at houses, not apartments or townhouses because of this “golden rule”.

The premise for “land appreciates” as I understand it  is that the intrinsic value of a property is based more on the land content than on the building. So the conclusion most people would come to is that the bigger the land content, the better the property is as an investment. Perhaps we should all go out and buy acreage property? And maybe the other conclusion would be that buying apartments and townhouses with low land content is not as good an investment.

The premise for the “houses depreciates” is that the value of the house goes down over time, just like a car or a computer, making it a bad investment. Of course this is not fact. 

Houses appreciate in value over time. Apartments and townhouses appreciate in value over time. Investing in property is all about buying a property that will appreciate in value over time and deliver capital growth and good returns. It is not about just investing in one particular type of property such as houses because of the land content.

So there must be other factors we need to consider. Perhaps we should change the statement. Then it might make more sense.

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Lindy Lear is a successful property investor who had a late start into investing, yet has grown her portfolio to eight properties in three years. She is a qualified property advisor and general manager of Rocket Property Group, and she won the Reader’s Choice Award in 2009 for Property Investment Advisor of the Year.

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Lindy is passionate about helping others realise their goals through investing in property, and can be contacted at 02 8012 9669 or visit http://www.rocketpropertygroup.com.au/

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Comments
  • STEPHEN CORRY says on 21/10/2012 10:00:46 PM

    I used to be a subscriber to the idea that property goes up and the building goes down in value. I then heard about the change in priorities for typical young couples and Gen Y. They now looking for convenience and accomodation that suits their lifestyle. They dont want to drive long distances, they dont want a big yard to mow, and they dont have big families. So where is the need for a house in the outer burbs? They do want restaurants, bars and entertainment. Units are more in demand these days - and demand is where the rubber hits the road.

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