What does economic life refer to in real estate?

Economic life in real estate specifically refers to the duration during which an improvement adds value to the land. This concept emphasizes the period in which a property or its improvements generate a return on investment or contribute positively to the overall value of the property.

During this economic life, the property is not only physically usable but also effectively produces income or appreciates in value, making it a key consideration for investors and appraisers. Once the economic life has ended, the improvements may still physically exist but are no longer considered economically viable, meaning they no longer contribute significant value to the land or the property’s potential profitability.

Understanding economic life is crucial for assessing investment opportunities, as it helps in evaluating whether the cost of maintaining or upgrading a property will result in a return that justifies its expenses over time.