[Tcoat]

Originally Posted by extrashaky

The depreciation you're referring to is amortization of cost to recognize the expense of the purchase over the expected life of the equipment. That's not the same as "depreciation" of a vehicle in terms of a drop in market value. I think you understand that, but it's an important distinction to make.

Capex or PPE expenditures should result in a return that exceeds depreciation expense plus all the other expenses involved in owning and maintaining the equipment. You don't buy a piece of equipment for a factory expecting it to lose money for the business. You buy it expecting it to either increase income or reduce cost and thereby contribute to profit. Otherwise there's no point in buying it.

The expectation of a return is what makes it an investment. People are getting hung up on capital gain, which is only one narrow type of return.

My dad bought a piece of land and built a building. He leases it to a business. He gets a pretty good income from the building after expenses are subtracted from rental income, despite the fact that the building is a depreciating asset for accounting and tax purposes.

Nobody would tell my dad, "That's not an investment. You didn't invest in real estate." At least not anybody who knew what they were talking about.

Yet the same people who can easily see the investment in the depreciating building can't get their heads around a depreciating piece of equipment also being an investment because, just like the building, it makes money for the owner.

Yep I get it. I was simplifying the scenario to the car as a piece of equipment. The ROI is more related to the work the car performs than the vehicle itself. At the end of it's depreciation cycle you can throw it away and still have received the ROI or keep on using it and have even greater gains. Of course at some point the cost of maintaining it would counter any further gains and "investing" in a new one makes more sense. The material car will never be an investment as people think of the term.