You're looking at it just from a tax-accountant point of view and leaving out a lot of other pertinent information. Tax Shield alone doesn't give the full picture, you have to look at net annual casfhlows and appreciation of the asset as well.
I'm pretty sure he was talking only about nominal rate of return.
More importantly one has to consider inflation and competition between old stock housing and replacement values.
Economically, when capital appreciation is all that matters to the investment decisions (i.e. prices are divorced from rents) then buildings do, indeed, appreciate.
Even when real estate values rise at low levels we see buildings appreciate in value.
For the simple reasons of inflation, repairs and maintenace, and replacement cost considerations.
My little example is interesting because it was a condo. Condo’s do have a land value and an improvement value - yet does anyone buying a condo consider their purchase to be the dirt below the unit two stories below them?
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