<--Back to Wiki Home

Define Cost Recovery (see Depreciation) in Real Estate

Cost Recovery (see Depreciation): 

"Cost recovery" is a fancy term for when something gets older and loses its value over time. For example, if you have a car and you use it every day for work, after a few years it will start to wear out and won't be worth as much as when you first bought it. In real estate, the same thing happens to buildings and other structures. When an appraiser is trying to figure out how much a property is worth, they take into account how much it has depreciated, or lost value, over time.

Example: 

Let's say you bought a rental property for $200,000 ten years ago. Over those ten years, you've been collecting rent from tenants, but you've also had to make repairs and replace things that have worn out. When you sell the property now, it might not be worth $200,000 anymore because of all the wear and tear. The cost recovery, or depreciation, would be taken into account when the appraiser is figuring out how much the property is worth.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

Cost recovery, what does it mean?
It's when things lose value, like a car that's not so clean.
Or a building that's old, and needs a fix or two,
It won't be worth as much, it's true, it's true.

So when the appraiser comes to take a look,
They'll see how much the property has shook.
From all the years of wear and tear,
They'll calculate its value, it's only fair.

So don't be sad if the number's not high,
Just remember, everything gets old and tired, oh my!
Cost recovery, it's not so bad,
Just a fancy term for when things make us a little sad.