The indispensable Asset
I often describe real estate as the “indispensable asset”. This is because it serves multiple purposes: fundamentally as shelter, but from a wealth perspective, it is a physical asset that stores value.
Owning direct real estate is not a paper derivative or an obscure claim on wealth: real estate is the wealth.
Real estate is just that – it is a real asset with real benefits, and real value. Intangible assets do have value (think of the Nike or Coca Cola brands), but the value of a property is far easier to have confidence in, particularly in difficult economic times.
Real estate is the asset that gives other things value: most of the debt around the world is backed up by real estate, and without the real estate, that debt has no value.
Value that endures
In short, real estate has the value that endures. Good real estate will always be worth something.
Double brick homes in Sydney can last up to 200 years or longer. And as the property ages and deteriorates, you can repair or even improve the property.
And the land underneath the property will have value forever.
How long do companies last?
In the US, the average age of a company listed on the Dow Jones is 111 years old, thanks to stalwarts such as ExxonMobile and General Electric, which date back to around 1870.
Contrast this to the broader S&P500 index which has an average company age of just 15 years. Of these, you don’t know which ones will endure, and which ones will last only a short while before they disappear.
And then there is Enron, which lasted 16 years – but its value was an illusion.
Real estate is an investment that forces you to think about the future.
Your house will outlast almost everything else that you own, including the companies that make them. Your house will also outlast the people that have lived there.
Now, property prices will go up and down. However here’s the key: whether the price goes up or goes down, real estate never stops being valuable.
You will never pick the top or bottom of markets, but my tip is to distinguish between things that have lasting value, and things that do not. And spend your life accumulating things that have value – like good people, good books, wonderful memories … and good quality real estate.
This commentary is general in nature and does not take into account your personal financial circumstance.