Economic analyst Emmanuel Ameth advises us when we are going to buy a property, consider not only the added value offered in the market but also, and even more importantly, the reduction in value or depreciation of buildings. Even considering that the value of land tends to increase steadily, usually by demand and services offered, the building gradually reduces its value and we must invest in it so they do not miss absolutely.
To calculate the value of the properties, we must consider that there are 3 types of depreciation of a house or building: physical depreciation, functional obsolescence and economic obsolescence, as says the Quality Houses Certified Inspector, MAI Lourdes N. Cruz. It is convenient to say that there are other theories and ways to calculate depreciation of property, but for practical purposes, we will talk now of these three.
It is worthy to know that a construction with good materials and with a great maintenance, has limits in its life. Most buildings with over 30 years are in conditions that require a full replacement; it’s not that in 30 years all stop serving, but even with good maintenance, the lifetime of a construction can be extended to 50, 60 or even 70 years at most; and what to say to those who receive no maintenance or improvement after 15 years of built are already depreciated and its value should be very low or almost nonexistent.
However, it is important to mention that the land where they are built is another story, this should not be devalued. The lands tend to create a capital gain and are only they who can really get to generate it in most cases, however not everything is hunky-dory, this theory is not always true and we want to talk about it in this post.
While buying a house, it is important to consider factors such as the age of the construction, the material it was made, improvements or fittings that has received, basic services it has, the place where it is (the principal), services that are around as schools, hospitals, shops, parks and churches; the value of neighboring properties, but above all, the amount of land on which it is built. There are formulas to calculate the present value of a property by taking into account the gain on the land and the loss of value of construction by natural depreciation thereof.
For physical depreciation itself, we must consider the physical components of the structure and they are often referred to 2 types, those long-term can be assumed to have a life equal of the entire structure as floors, slabs, walls, windows, doors and facilities for electrical and plumbing; and those of short-term electrical fittings, plates, fittings and interior partitions are made of different materials to the rest of the house. To avoid this physical depreciation, it is recommended to give proper maintenance to all components as painting regularly, replacing broken windows, repairing doors, give maintenance to fixed furniture of kitchens and bathrooms, verifying the operation of doors, windows and electrical fittings and if they have faults, should be replaced immediately. By keeping all the property up to day, diminish the loss in value but must consider that despite this, time will always be one of the most important points for devaluation.
When we speak of loss of value of a home by defects in the structure, materials or design, we mean functional obsolescence. It is common property count with very high or very low ceilings, the number of bedrooms are no longer desired in the market, the size of the rooms is not appropriate, the bathrooms are in inappropriate places or simply that the layout of the house are no longer the taste of the market or the most desired; even the design or construction materials vary over time and may cause loss of property value when compared with other latest and attractive to potential buyers. As in the physical devaluation, to avoid this type of impairment is recommended to correct obsolescence, provided that the correction value is not greater than the value that it can contribute to the total value of the house; every dollar you invest in improving a property does not add the value of the property in the same way and even if the changes you make are not well planned, they could produce the opposite effect.
Finally, loss of property value, and this also considers the land value, is one that does not depend on the construction or design or materials used but of economic obsolescence, known because the loss is irreparable and depends on external (sometimes temporarily but most permanent cases) causes due to oversupply of properties on the market, the location of a management waste area nearby that causes odors or insects and rodents , generating new poles of development more attractive or abandonment of the area which would cause a drastic change in market or its inevitable destruction. Unfortunately here you cannot do more than prevent, before buying a property you must study the land use and Urban Development Plan for the area where you want to acquire and try to avoid such future problems.
The oversupply in the real estate market is one of the most serious problems of real estate in Los Cabos, mainly by government decisions and freedom that has been granted to large developers, which as a result caused an oversupply of properties and will cause a falling real estate prices in a short time, followed by the obsolescence of the properties and age of the same. Keeping our destination updated is the task of all; if you want to sell or buy a property, please contact us; we can support you to make the right decision and improve your real estate experience.
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