Okay, so picture this. You’re walking through one of those amazing historic neighbourhoods, right? And you’re admiring all those beautiful old homes, maybe with the awesome landscaping and all, and then it hits you. What if buying that fixer upper down the street, you know, the one is actually like a way smarter investment than that shiny new apartment they’re putting up downtown?
It’s so easy to get caught up in the idea of new construction, right? It’s like our brains are wired to think newer is always better.
Totally.
But that’s exactly what we’re going to unpack today. This whole myth that new properties are automatically the better investment, especially when you’re thinking long-term.
So, less about curb appeal and more about future wealth appeal.
Got it.
And I got to say, this deep dive makes a really strong argument about why those older properties might actually be like the hidden treasures of real estate.
Absolutely. They start by breaking down this word you hear everywhere in real estate, depreciation.
Yeah, depreciation. It’s one of those words that always makes my head spin a little. People always say it’s a good thing for new properties, but I’ll be honest, I’ve never fully grasped why.
Okay, so it’s basically this. The government lets you in a way deduct a chunk of your property’s value from your taxable income every year to account for, you know, regular wear and tear.
And this makes sense for the actual building, right? But here’s where it gets interesting. It applies way faster to new builds.
So faster depreciation for newer buildings sounds good on the surface, I guess,
right? But here’s the catch. If you’re laser focused on just depreciation, you might miss the bigger picture of what really makes a property valuable over time, which is land, exactly land. Here’s this great example comparing two properties. Both are worth $600,000 initially. Property A is that stately older home, you know, the kind with good bones. And the land’s worth $400,000 while the building’s at $200,000.
Okay, makes sense.
Now, property B is our brand new apartment. Flip, right? The land’s only $200,000 and the building’s a whopping $400,000 cuz everything’s new.
Got it. So, are you saying all that emphasis on higher depreciation for new buildings kind of distracts from the fact that the building itself might not be the best long-term asset?
Exactly. Because let’s be real, a building’s like a car. The second it’s built, its value starts going down.
So, the building’s more of a liability in the long run.
You got it. And that’s why understanding that land to building ratio is so crucial. With property A, most of your money is in the land and land usually increases in value over time. Why? Because there’s only so much of it, especially in those really desirable areas,
right? Makes total sense.
But with property B, you’ve got way more tied up in that depreciating building.
Interesting. Okay, so let’s fast forward, say 8 years. What happens to our two properties then?
Well, imagine that the land value for both properties doubled. And the difference is pretty amazing. Remember property A, our stately old house? It’s now worth, get this, $960,000.
Whoa. Okay. So, the land value going up had a huge impact, even if the building itself might need a little TLC by now.
Yeah. And the depreciation on the building is basically a drop in the bucket compared to the land value increase. Now, our shiny apartment, property B, after 8 years, it’s only worth about $720,000.
Wait, so that’s a $240,000 difference. That’s huge.
It all comes back to land depreciation. Even if both properties went up at the exact same rate, that initial difference in land value versus building value makes a huge difference long term.
It’s like they say in real estate, location, location, location.
Exactly. You could have the coolest, most modern place in the world, but if it’s on land that isn’t appreciating in value, you’re missing out. And this is often true, even when you factor in the supposed tax advantages of new builds.
You mean the whole tax savings thing everyone talks about with depreciation?
Yep. You might save more on taxes initially with that new apartment, but
that might not actually make a real difference over time.
Now you’re thinking. Let’s look at our example properties again. Property A, remember, has a lower depreciation rate. It might have saved you, say, $8,000 in taxes over those eight years. Property B, our new apartment, might have saved you, say, $32,000. Sounds pretty good, right?
Until you remember that property A is now worth $240,000 more.
Boom. Mic drop. Even with a better tax cloak, that old house with more of its value in the land still comes out way ahead.
So, it’s not just about saving a few thousand on taxes. It’s about potentially hundreds of thousands in appreciation over the long haul.
Exactly. You’re getting it. It’s about seeing the bigger picture and really understanding what drives long-term value. Depreciation is just one piece of the puzzle.
This is seriously making me rethink everything I thought I knew about real estate. It’s so easy to get all lured in by those fancy new bills, but now I’m seeing the appeal of those older places. Speaking of appeal, what about the idea that with new places you don’t have to worry about fixing things? as much, you know, less time with leaky faucets and more time enjoying your life, right?
Yeah, that’s a really common thing. People think new construction equals no worries. And sure, those new appliances and all might mean you’re not running to the hardware store every week. But here’s a different way to think about it. What about renovations?
Wait, so instead of seeing potential repairs as a bad thing, we should think of them as a chance to make the property worth even more. That’s a pretty cool way to look at it.
Exactly. So imagine this. You buy that old builder house and then put, say, $60,000 into a really well-thought-out renovation. If it’s done right, using quality stuff and focusing on what buyers want, they could easily add, let’s say, $100,000 to how much the place is worth.
Wait. So, you’re talking a $40,000 profit on top of whatever it’s already gone up in value. Suddenly, that fixer upper is looking pretty good.
And here’s the thing, you can’t really renovate something that’s brand new. I mean, yeah, you can paint the walls or whatever later on.
Yeah.
But you just can’t add that same kind of value. It’s like, I don’t know, the difference between buying clothes off the rack versus getting something custom made just for you. Older properties give you so much control to create something really unique.
It’s like those home renovation shows where they take these houses that look like lost causes and turn them into something incredible.
Yeah. And I mean, yeah, those shows make it look kind of easy and don’t show all the hard parts, but the idea is right. With older homes, you have options and flexibility you just won’t get with a new build. You can fix it up on your own timeline, make it fit your budget, and really get what you want out. of it.
This is all amazing information, but I got to be honest, thinking about actually doing a renovation is a little intimidating. Like, what if someone’s excited by the possibilities, but also overwhelmed by the idea, actually, you know, picking up a hammer?
It really comes down to planning things out carefully, doing your research, and getting the right people on your side, even before you even start thinking about actually fixing things up. Figure out what kind of renovations will actually increase the value in your area. Set a realistic budget. and definitely talk to pros like contractors, designers, even experienced real estate agents who know what people are looking for these days.
So, basically, like any other big project, don’t just dive in without a plan.
Exactly. And another thing, you don’t have to do everything all at once. You can break renovations down into stages, right? So, it makes sense for your budget and the house itself. Maybe you focus on the kitchen and bathrooms first, you know, the stuff that really makes a difference, and then later on you can do more cosmetic stuff.
It’s all about making smart choices that give you the biggest bang for your buck. We’ve covered so much today and I have to say I’m looking at those older houses in a whole new light. But before we wrap up, any downsides to these older properties? Because let’s be real, every investment has some kind of risk, right?
You’re totally right. It’s super important to know what you’re getting into, both the good and the bad. So with these older places, yeah, you might have to spend more upfront to fix things. compared to a new build like we were talking about before. And also, sometimes it can be trickier to get a loan for an older place because banks can be more strict about things like inspections and all that.
That makes sense. Banks don’t want to take risks either.
Exactly. It’s about being realistic and being prepared. Yeah.
You know, that’s why having people you trust on your side, from agents to those mortgage people to good contractors, can be a lifesaver. They can help you figure all that stuff out. Make sure you know what you’re getting into.
So much good stuff to think about. Sounds like whether you’re into the brand new stuff or those older homes with more personality, the key takeaway is to do your research and plan everything out.
One that always trips people up, especially if they’re new to this whole investing thing, is this obsession with timing the market. Like, they spend all their time trying to figure out the absolute perfect moment to buy or sell, thinking they can, you know, outsmart how the market naturally works, trying to time the market. Sounds stressful, honestly.
Totally. Being good at real estate isn’t about timing the market perfectly. It’s about time in the market. You know, playing the long game, being ready for those ups and downs, and building a portfolio that’s based on the things we talked about today, land value, how things appreciate over time, and being able to add value by doing smart renovations.
So, instead of trying to get rich quick or outsmart everyone else, it’s about finding those solid investments that’ll be good for years and years. Kind of like those cool older homes we’ve been talking about.
Exactly. Slow and steady wins the race. Yeah.
It’s like that story about the tortoise and the hare.
The tortoise might not be the fastest, but they get there in the end by being consistent and strategic.
I love that you’ve given us so much to consider today. I feel like I have a totally new perspective on the real estate game now. Any last bits of wisdom for our listeners before we wrap things up?
Okay. So, if I could leave everyone with just one question to ponder, it would be this. Imagine you had a crystal ball right there and you could see what a property would be worth years from now. Would you still make the same choices about buying and selling that you’re making today? Something to think about.
Wow, that’s a good one. Really makes you stop and think about the choices we’re making now and how they’ll play out down the road. A huge thank you to our expert for breaking all of this down for us today. And to our listeners, as always, keep asking questions, keep learning, and keep digging deeper. You never know what amazing opportunities you might find.
