Real Estate: Mark Twain's Case for Investing in the Bay Area &
Other "Bubble" Markets
Mark Twain took a long-term and somewhat philosophical look not
only at life but real estate. Looking through Mark Twain's eyes,
there's a strong case for continuing to invest in tight real
estate markets such as Bay Area real estate.
Real estate is always a good investment, Mark Twain once said,
because "God isn't making it anymore!" With talk of a "bubble"
in high-priced real estate markets such as the Bay Area, New
York City, and Boston, it's important to remember that when it
comes to the laws of supply and demand, no other investment can
quite match real estate. Reasons for Investing in Bay Area Real
Estate & Other "Bubble" Markets
* Intrinsic value from intrinsically short supply. To
paraphrase Mark Twain, not only is there not going to be any
more supply in the real estate market. There is going to be
plenty more demand: millions of babies born into the world each
year who will probably be willing to pay for a roof over their
head at night-and while they're at work, eating at a restaurant,
or doing anything else.
o Bubble market corollary: Not only is the supply of real
estate in terms of acreage not going anywhere; developers are
increasingly unable to create more real estate (in the form of
bigger buildings or more buildings on existing lots) in
tightly-packed and tightly-regulated markets such as Bay Area
real estate.
* Relatively stable investment potential. Real estate sometimes
loses value, but never completely, even in the worst case. If
Mark Twain had filled a time capsule with twenty shares of
cable-car stock and twenty deeds to San Francisco houses, which
would be worth more today? Twenty, thirty, and a hundred years
from now, personal computers may become museum pieces and oil
may only be needed for squeaky door hinges. But people will
still need houses, offices, nightclubs, restaurants, and every
other kind of roof over their heads.
o Bubble market corollary: The "bubble" markets are unlikely to
lose demand relative to other markets since they are so "in
demand" not only in the US but around the world. In many
countries around the world, saying you're from the US is
unfortunately a way to end a conversation. But saying you're
from San Francisco, Boston, New York, Miami, or Los Angeles will
usually only bring a smile and many interested questions.
* Revenue potential. Not all stocks pay dividends, but almost
every real estate investment has the potential to generate a
regular stream of income. Whether you are buying investment
property from afar, or just renting out a spare bedroom, the
money you make on rent may provide a cushion against any drop in
values.
o "Bubble market" corollary: high-cost areas also have the
highest average rents.
In closing, sure-fire investments are in even shorter supply
than real estate-in fact, there aren't any. Any investment will
inevitably go down, sometimes momentarily, sometimes for longer
stretches. However, keeping in mind the relative risks of
investing in real estate versus other investments, real estate
investments are still attractive for long-term investors who
appreciate the intrinsic benefits of investing in real estate,
even in pricey markets.
Important disclaimer: the above article is provided for your
reading pleasure only and is not intended to provide investment
advice. All examples are hypothetical and intended as
illustrations, not guidelines. Opinions expressed in this
article are not necessarily those of the owners.