Real Estate: Mark Twain's Case For Investing In The Bay Area & Others

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.