While some “experts” might talk about the cycle of housing boom and bust, at Empowered Investor Network we figured out a long time ago that it’s the value of the land beneath the house that fluctuates the most. The house itself, or improvement, is likely to hold value and even increase as time goes by.
Why is this?
The answer is deceptively simple. What is a house? It’s a collection of basic commodities assembled into a structure. Things like copper, petroleum products, wood, bricks – these are the literal building blocks of a house. Due to the exploding size of the middle class in China and other growing economies around the world, demand for these commodities surges ever higher but…
If you buy a property with a house on it today, you have locked in the cost of commodities needed to build that house for as long as the house lasts. Say a future owner of the property needs to tear down and completely rebuild the structure in 50 years. Think it’s going to cost him a whole lot more?
You bet it is.
Take this basic knowledge of why commodity prices are likely to stay high, run any property you want to buy through the Hartman Risk Evaluator and it will tell you to stay away from areas where an inordinate amount of the overall value rests in the land itself.
