California Real Estate's Inherent and Long Term Value

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 21^st 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

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.