An 800 square foot 1BR condo in many parts o Manhattan will cost you around $1 million. Some people think that is absolutely ridiculous. Others see it for what it is – an investment that will yield high appreciation.
Same goes for other high cost areas like San Diego, Los Angeles, Miami etc…On the surface, the towering costs of entry into these markets may seem deterrent, yet, beneath lies a mosaic of compelling reasons that make them investment magnets.
Let’s unravel this intricacy and understand why placing your chips in these upscale markets can be a sagacious move.
Insane Appreciation: The Golden Goose of Real Estate
At the heart of real estate investment is the promise of appreciation — the increase in property value over time. San Diego and NYC , for example, do not just promise; they deliver with zeal.
The appreciation rates in these areas are often labeled as ‘insane’, not for their unpredictability, but for their robust and consistent upward trajectory. The numbers speak volumes.
For instance, San Diego has seen decades where the average rate of appreciation has significantly outpaced the national average, 46% in the past 3 years, rewarding investors with sizeable equity gains.
Similarly, NYC, with its perennial status as a global hub, has seen properties in prime locations double or even triple in value over a relatively short span.
To be fair, the pandemic saw record level appreciation rates across the country and it’s safe to say we’re in a completely different interest rate environment so homes will revert back to their average appreciation rates.
Scarcity: The Undeniable Force of Economics
The fundamental law of supply and demand underpins the value of any investment. In real estate, scarcity is a significant driver of demand.
Both San Diego and NYC possess a unique brand of scarcity. San Diego, with its idyllic climate, stunning coastline, and limited land for development, guarantees a supply-side squeeze. NYC, on the other hand, with its island geography and iconic status, faces similar limitations.
This scarcity ensures that the property in these regions remains in perennial demand, which in turn, guarantees that prices continue to appreciate.
Economic Vibrancy: The Pillar of Sustainable Investment
A closer look at the economies of San Diego and NYC reveals a pulsating vitality. San Diego boasts a diverse economy with burgeoning sectors like biotech, defense, and tourism. NYC is an economic colossus with its fingers in finance, technology, entertainment, and beyond.
This economic vibrancy assures investors that their real estate holdings are underpinned by a strong job market and a continuous inflow of people looking for housing — two factors critical for long-term rental and property value sustainability.
Lifestyle and Prestige: The Lure of High-Cost Living
Lifestyle and prestige are intangible yet potent reasons why high-cost areas continue to attract investment. Owning property in San Diego or NYC is not just an asset on the balance sheet; it’s a lifestyle statement.
The cultural richness, social scenes, and prestige associated with these areas cannot be overstated. For many, investing in such locations is as much about the experience and status as it is about financial returns.
You’re not ever going to see a city as vibrant and with as much energy as NYC. It’s honestly a bit much. It never ever sleeps. There is always something to do at all hours of the day and night from museums to comedy, to concerts, to fine dining, amazing rooftop lounges and clubs, and of course its beautiful brownstones in boroughs such as Brooklyn and Manhattan.
Leverage and the Long Game
While the initial cost of entry is high, the ability to leverage in real estate is a game-changer. This leverage means that the insane appreciation discussed earlier works not just on the initial investment, but on the total property value.
Additionally, real estate is a long-term play. Over time, mortgage debts decrease as equity builds, often at a pace that far exceeds the interest cost, especially in high-appreciation areas.
Global Recognition: The Universal Appeal
Both San Diego and NYC enjoy global recognition, and this has a significant pull on investment dollars. As cities with international airports and global cultural significance, they draw tourists, businesses, and residents from all over the world.
This universal appeal stabilizes the investment environment, as the inflow of international funds and interest provides a buffer against local economic fluctuations.
Hedging Against Inflation
Real estate in high-cost areas is a natural hedge against inflation. As the cost of living rises, so too does the value of property, and rents tend to increase accordingly.
San Diego and NYC, with their robust economies and international demand, are particularly resilient, providing investors with a sense of security in their capital’s purchasing power.
No doubt, investing in high-cost areas like San Diego and NYC requires deep pockets, but the rewards align with the risks.
The combination of strong appreciation, scarcity, economic vibrancy, lifestyle, and global recognition creates a potent mix that can lead to substantial returns on investment.
While not for the faint of heart or light of wallet, for those equipped to navigate these prime real estate waters, the potential for significant wealth generation is profound. In the end, as any seasoned investor knows, it’s not just the cost of entry that matters, but the value of exit — and in these areas, the exit signs often gleam with the promise of golden returns.