Curable Depreciation

Definition

Curable Depreciation in real estate refers to any deterioration of a property that can be fixed at a cost less than the value it will add to the property. This may include issues such as outdated kitchens, worn flooring, or any other physical obsolescence that can be remedied to enhance the property’s value and marketability.

Examples

1. Apartment Unit Revamp: An apartment owner estimates remodeling the dwellings would allow an increase in rent by $20 per month. The cost for remodeling is $1,500 per unit. If the prevailing Gross Rent Multiplier in the neighborhood is 100, the value added by remodeling is $100 × $20 = $2,000 per unit. Thus, timely and strategic updating of outdated property features represents curable depreciation.

2. Office Space Upgrade: Upgrading the office space layout from an antiquated design to an open-floor plan. The renovation cost is $10,000, but the new layout is expected to increase the lease rate enhancing the property’s value by $15,000—exemplifying curable depreciation.

3. Landscaping Improvements: Renewal of a property’s landscaping, costing $5,000, increases its curb appeal and ultimately raises the market value by $6,500. Landscaping, therefore, can salvage curable depreciation.

Frequently Asked Questions

1. What makes depreciation “curable”? Curable depreciation is classified as such due to the correction cost being less than the expected value addition. Restoration, repair, or update of worn or outdated property aspects should be cost-effective in comparison to the enhanced asset value.

2. How does curable depreciation differ from incurable depreciation? Curable depreciation pertains to issues that can be addressed economically—more investment results in more returns. Conversely, incurable depreciation involves defects or obsolescence that can’t be remedied cost-effectively, or at all.

3. What types of upgrades are considered curable depreciation for residential properties? Examples include fixing structural issues, updating outdated kitchen appliances, installing new flooring, repainting, modernizing bathrooms, and enhancing curb appeal through landscaping.

4. How can a property owner identify curable depreciation? By assessing the cost of needed repairs and comparing it to the potential increase in property value. Professional appraisers or real estate experts can provide targeted evaluations.

5. Are cosmetic upgrades generally considered curable depreciation? Yes, most cosmetic upgrades if they directly translate to increased rent or property value, fall into curable depreciation.

Related Terms

• Functional Obsolescence: A reduction in a property’s usefulness or desirability due to outside factors—curable functional obsolescence can often overlap with curable depreciation.

• Gross Rent Multiplier (GRM): A ratio used to appraise the value of income-generating real estate properties, showing the relationship between rental income and market value.

• Incurable Depreciation: Depreciation stemming from defects that either cannot be fixed or where fixing them would cost more than the value added.

Online Resources

1. Investopedia - Depreciation Definition
2. Nolo - Real Estate Depreciation
3. IRS - Depreciation

References

1. Real Property Law, Fourth Edition by Ray Burnette.
2. Modern Real Estate Practice, 20th Edition by Fillmore Galaty, Wellington Allaway, and Robert Kyle.

Suggested Books

1. “Property Valuation” by Peter Wyatt
2. “Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
3. “What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures” by Frank Gallinelli

Curable Depreciation Fundamentals Quiz