The reason is that supply is limited in desireable areas - there are only so many homes you can build within reasonable travelling distance of dowtown - whilst demand is on a long-term uptrend due to inflation and real economic growth, which in turn increases wages. Rising demand + limited supply = rising prices.
Cutten, I think your argument makes sense.... so long as population and economic growth continues in a certain area - there will be a limited supply and increasing demand. To make money in RE, one would really need to make a good guess at what the long term economic outlook for an area is. As far as rent is concerned... It is true that you can charge rent and make a good living investing in RE, but that does not explain a steady increase in RE prices. further on in the thread, someone mentioned that people hesitate to sell their homes for less than what they purchased for them. This too would explain the steady increase in prices. The market may still fluctuate though.. Granville
Good one...and very true!! Real estate, like so many other things....is a market! it does NOT go up all the time....as we will see soon...already lightened up all over the place. When clowns are selling something for 2 million or rent for 6k/month...something will give...and it won't be rent going up. So all these reasons such a 'location' etc..is just the reason that's pegged to it going up. Japan went down for 18 years and it's an island! location will help...but now that's it's pretty much over, get ready for the next couples years of ugliness... not trying to be a doom and gloomer...trying to put some reality into it.
When I told Electric I wanted my own place, he bought a 450 sq ft Condo in Metro Denver. When I told him I wanted a ranch house, he said 'Pull up a chair" and help me trade this system 24 hours... I swear that man and his woodgrain...im' gonna kill someday. Wifey
Do not forget the income sheltering feature of income generating real estate as well. You can depreciate the building's value over twenty some odd years and depreciate the fixtures over shorter periods, such as boilers, etc. This non-cash charge will be deducted from income on tax returns whilst the cash flow generated is real and untaxed. This naturally increases your rate of return.