The old adage about how your new car instantly sinks in value as soon as it pulls out of the parking lot? There is some truth in it. Cars tend to depreciate quickly, while other items hold their value longer. So which items will you be able to sell later for a decent price, and which ones are doomed to be worth much less than what you paid for? Here are some examples at both ends of the depreciation spectrum.
- Cars lose 20% of their value in the first year of ownership and retain only 40% of their original value after five years.
- Vacation timeshares can lose up to 70% of their value when resold on the secondary market.
- Homes can increase in value over time, but for tax purposes, you can depreciate a rental property for 27.5 years.
The depreciation rate varies by model, but typically a new car loses 20% of its value in the first year of ownership and then 10% annually for the next four years. After five years, the vehicle is worth only 40% of what you paid the dealer. The silver lining: Buying a car that is one or two years old, you can get a great deal–after the initial owner has already assumed the loss.
Computers and Electronics
Few things seem out of date as fast as electronics. Robert Wesley of NextWorth, an electronics exchange and resale company, says that while electronics in general can depreciate quickly, Apple products tend to retain their value better, due to the added perceived value of the brand to consumers. . It adds that consumers can reduce the depreciation rate of electronic products by storing the item in a case, using a screen protector, and keeping all original manuals and packaging.
The median price of a timeshare in the primary market is about $ 23,000 and could be more depending on location and specifications. In the resale market, however, you can find discounts of 70% or more. Why? Unlike other real estate, timeshare should never be viewed as an investment, says Lisa Ann Schreier, founder of consulting firm Timeshare Insights. Instead, its value is in the savings you’ll get from not needing hotel rooms on your next vacation.
When it comes to toys, the value over time can vary greatly. The average toy store purchase loses most of its value as soon as you bring it home, so toys generally depreciate quickly. The exception is when the toy is collectible. Elizabeth Stewart, Appraiser from Santa Barbara, California, advises against mass-produced fashion items (think Beanie Babies). On the other hand, pre-1970s toys–as long as they are like new or better yet still in the box–have increased in value due to their rarity.
Hunting and sport equipment
Les Miles, a Texas appraiser who is on the machinery and technical specialties committee of the American Society of Appraisers.says the best items for a small depreciation–and sometimes I even appreciate–they are things that everyone wants to wear and items that do not experience much physical deterioration. It says that rifles, shotguns, and other sports paraphernalia would fall into this category.
Without a doubt, homes and other properties tend to appreciate over time. But in some cases, it can depreciate the value of your home for tax purposes. The Internal Revenue Service (IRS) considers residential property to have a useful life of 27.5 years and the property continually depreciates during this period (although this write-off only applies to rental property).
In real life, the value of a property depends on a number of factors, including condition, location, the relative value of nearby houses, the convenience of the neighborhood, etc. Of course, the economy affects market values too, as many homeowners have recently discovered. Even if a home appreciates, when it is sold to a new owner, the 27.5-year tax depreciation clock starts anew.
The bottom line
For some items, the market value plummets once the item is no longer new. If you’re thinking of buying something that you might want to sell at some point, be sure to research the depreciation rate and be realistic about resale values.