We all want our real estate investments to appreciate, right? We’re not in this for our health. Maybe you’re a property professionals who was able to see through the sinking ship of the stock market, who grew tired of the roller coaster to nowhere Wall Street dragged you on over the years and suddenly realized, once inflation was factored in, your portfolio was the victim of anemic growth.
It’s no secret around here that AIPIS stoutly believes real estate to be a superior investment but why? Why has it appreciated in the past and why do we expect it to do so in the future? Chances are your real estate school didn’t do more than skim the topic but we think it deserves a little more attention than that. There are two solid reasons we believe real estate will always appreciate in the long term.
1. Cost of commodities: This is a big one. Millions of people in India and China are reaching the middle class each year now. Guess what they’re going to want to do? Buy a house. What’s the house built with? Basic commodities like wood, metal, copper, stone, lead, and a jillion others. When a growing number of entities (the New Middle Class) compete for finite resources (commodities), the price goes up. Jason Hartman coined a name for the idea of a house as a Packaged Commodity, and that’s exactly what it is.
2. Cost of Labor: It takes many man (or woman) hours to put together a house and if history teaches us anything, it’s that the cost of labor never gets cheaper. Ever known a contractor who decided to slash his labor rate across the board? The next one we run into will be the first.
Like laws of physics, these two factors combine to insure that real estate will always grow more expensive as time passes. Of course, there will be short term dips but when you step back to look at the Big Picture on a chart, expect to see the line steadily rising. As far as the stock market, are there intrinsic economic reasons one can expect the class of asset to always rise and never fall?
The AIPIS Team
Flickr / ernop