Understanding the concept of value is central to the Buy and Hold real estate strategy. Value is both created and destroyed by the actions and attitudes of people. Because value is affected by how people view the overall real estate market, as well as individual properties, a thorough estimate of potential growth takes the likely attitudes of people into account, whether they are buyers, sellers, real estate professionals, city officials, or economic policy makers.
Despite fluctuations in short-term appreciation, the market value of desirable real estate will invariably rise over time. It might not be evident over a specific period due to recessionary trends or inadequate activity in a given community, but because each piece of property is heterogeneous and unique, real estate is the type of asset that is advantageously affected by inflation, even when inflation is low. Real estate, because of its use value as residential, rental income or storage, etc. is probably a better investment than the stock market.
Six salient factors will prove real estate to be a superior investment far into the 21st century:
- Inflation- Rents go up, building materials cost more and the price of gas makes commuting to far away areas more expensive.
- Economic exuberance- more jobs being created push up demand for California housing.
- Geographical limitations- oceans, mountains, rivers, lakes, etc constrain limitations on local growth which puts pressure on existing housing.
Southern California’s coastal strip of land bordered by the Pacific Ocean and the Santa Monica Mountains is a prime example. Another one is the peninsula of San Francisco. That land abutment has made that city’s real estate some of the most expensive in the country. Everybody wants to be there.
4. Political limitations on growth. As soon as an area gets to be more crowded, streets become congested and local services become overburdened. Area governments start passing ordinances to making it harder to build new housing or add square footage to existing structures.
5. America’s population will double. Another 300 million new residents are expected to exist by 2060. Areas that exhibit economic dynamism will do particularly well.
6. 72 million more Echo Boomers. This generation, born between 1976 and 1994, are just now starting to come online, buying cars, renting apartments and houses then purchasing their first house.
This is the time to make hay and buy property in California. I predict we have two years before the REOs dry up. Well located property in areas of high demand will always do well. I buy my properties at wholesale prices but you do not have to. Even if you pay straight retail prices for houses, you will do well in the long term. No other place has the mix of industry, the ocean and the weather; California is still the land of promise!
Photo: Kevin Cole
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Article Author: Steve DexterSteve has written 11 articles for us.
Visit Steve's Website: http://stevedexter.net
Steve is the author of three books, is an invited expert commentator for CNN/Money, CBS Radio, Fox TV and numerous other newspapers and media outlets, has been a distinguished speaker at the Harvard Business School, Harvard Law School and their Graduate School of Design, and teaches courses in investing and real estate finance at colleges across Southern California. He is also an active real estate investor and owns 27 investment houses in Southern California and around the country.
Joshua Dorkin
{ 11 comments… read them below or add one }
“Areas that exhibit economic dynamism will do particularly well.”
Does that describe CA now? Can we reasonably expect it to describe CA a decade from now? CA is losing net population due to the results of its political leadership. Given last week’s election, do you see this changing any time soon? Thanks
Im so glad you brought that up because that is going to be my next post
Briefly, Calfornia has inherent advantages despite its being picked on for the last five decades. Did you know that we are this country’s chief agricultural exporter?
Ror me there is no other place. I moved here in 1987 from Houston, Texas looking to escape the oppressive humidity, to run the beaches, find my California beach blonde and walk the streets that were paved with gold (sic).
I found all four and then some. In 1990, I got into real estate, worked real hard (you have to here because of the high price of paradise) and bought investment property. It cost more here but you make more. My light haired beautiful wife and I enjoy the ocean views in Laguna Beach. We continue to do deals-hard money and joint ventures- with up and coming wholesalers who need the financial backing.
The distressed properties these young guns are turning up are just amazing…the best I have seen.
These bargain properties can be bought for less than half of what they were bringing four years ago. At the college classes I teach I am informing my students to stick around the state because the party is just starting.
I might add that the median house price in California doubled in the 1970′s, it tripled in the 1980′s and doubled and tripled again in the 1990s and early 2000′s!!
REaders—How did your state do during those years?
First of all, it’s obvious you were a quick adaptor.
Should I then infer from your response that the paradigm we’ve both enjoyed since I got outa high school in ’69 is still, more or less intact and reliably operational? Buy, don’t worry much about abundant cash flow, knowing the future holds a higher price?
yes, Jeff but its even better. Saw a 2 units on a lot that cash flowed 2400 a month. Purchase price? 180,000 w no fix ups
Please email me the address, as I’d love to show some of the locals. Much thanks, Steve. Have a good one.
Needless to say, it is already gone. But I do have a good deal for the right person but Im not sure if thats you,. Its going to go to somebody but if it is you, get ahold of me.
I’m not interested personally — just wanted the address to check it out. What an incredible deal.
It’s so good to hear this perspective. One hears so much nay-saying, so much fear and negativity about political and bureaucratic stuff . . . . but in the end, nothing’s going to take away California’s promise, or our perception thereof.
The negative case is always so well laid out. It is easy to be snarky, take pot shots and sound smart but you end doing nothing, It’s hard to be contrarian but that is where the money is
Thx for the comment
Hi Steve,
I could not agree more with your comments. With real estate market being quite low and the fact that people will always know that California ia premier holiday resort, property prices can only go up.
Fantastic blog and highly informed.
James.
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