SOME BRIEF POINTS
Some brief points relating to real estate as opposed to other means of investing.
1. “Get into land son, they ain’t making any more of it”.
2. According to Maslow, humans always satisfy their needs in a pre-determined order.....my experience suggests that means food first, then clothing then shelter.....there is only two ways to obtain shelter...buy it or rent it. That’s why demand will always rise where the population is expected to rise (W.A. for the foreseeable future).
3. The rule of 72 will help you work out the effect of inflation on property values and the expected growth rate....27 years selling real estate suggests property grows at roughly 2% in excess of inflation. Low inflation...low long term growth. In the 1980’s when inflation was 8%, property increased by 10% per annum (thereby leading to the “common wisdom” that property doubles in value every 7 years.... 72/10 ).
4. The cost of the elements of construction and the cost of developing land can be expected to rise as wages, fuel, bricks, energy and other costs rise.
5. Real estate is a long term investment....how long?....a minimum of 7 years preferably 10. Anything else is not investing, it is speculating. Some people have made money in real estate by speculating but more have made money by investing.
6. Real estate is for control freaks. You decide when to buy, when to sell, how well to maintain or improve the property, etc. If you invest in shares you are handing over control of your investment to someone else, usually the management of the business or company you are investing in. Consider the history of these companies once considered prime investments. Adelaide Steamship, IXL, Enron, HIH Insurance.
7. Cash gives you a return on your money and is maintenance free, but is at the mercy of inflation (Rule of 72 again.)
8. The longer the history of markets, the more it appears the smart money looks at what the herd is doing and does the opposite. As Warren Buffett has said “When everyone is being greedy, be fearful and when everyone is being fearful, be greedy.
Owner / Director
Noble Real Estate