What is depreciation and how is it calculated?
Depreciation is a French term meaning depreciation. It is used to express the aging share of real estates depending on time and use. Depreciation in real estate, on the other hand, indicates within how many years a real estate to be purchased will meet the sales price if it is rented.
Why Is Depreciation Period Calculated?
There are some factors that affect the value of the real estate to be invested. These factors are:
- Distance of the real estate to public transportation or main transportation lines
- Ease of access to facilities such as hospitals, cinemas, banks
- Expansion and value appreciation potential of its location
- Proximity to business centers and educational institutions
In addition to these physical conditions, which are taken into account when purchasing an investment property, the return period of the investment is also evaluated. By making depreciation calculation, it is determined in how many years the real estate will meet its value.
One of the issues to be considered while calculating the amortization period is that the value of the real estate may increase. Issues such as the centralization and development of the location of the real estate may lead to an increase in the rental price and a change in the depreciation value.
How is Property Depreciation Calculated?
When calculating the amortization period, the value of the real estate at the time of purchase and the estimated rental value are taken into account. To calculate the real estate amortization period, the current value of the investment is divided by the monthly rental price. The return year of the real estate value can be calculated by dividing the result by 12. For example, the real estate value of a house with a sale price of 700 thousand TL and a rental value of 3500 TL is calculated as follows:
700.000 (representative purchase price) : 3500 (representative monthly rental fee) = 200 months
200 : 12 = (Approx.) 17 years amortization period
Depreciation calculation can be made for real estates to be rented as well as real estates to be purchased for residence purposes. It is possible to decide to buy a house by comparing the amortization periods of other real estates.
Value comparison should be made taking into account the location of the house and environmental conditions. Since these conditions affect the rental price, they play a role in determining the amortization period.
