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Economy , Investing

San Francisco and Caracas are the extreme opposites. What’s in the middle?

January 30, 2019
san francisco and caracas

This article is in reference to a question that is currently very common in the real estate and investing world.

Q: What will trigger the world-wide real estate bubble to burst?

A: Nothing. There is no such thing as a ‘world wide real estate bubble.’

In fact, the idea that a property bubble exists in one location suggests that there are other locations that have an equally inverse property depression.

Let me explain…

In California, the San Francisco Bay Area is one of the most well known locations in the world when it comes to over-priced real estate. For the past decade, home prices have sky-rocketed to the point where a simple one bedroom home can cost well over $1 million. And that’s really about as low as home prices go for the area.

The reasons are quite simple. California itself offers an extremely high level of living and is one of the most beautiful places on earth (which is also why the entire State is generally very expensive). If you look at San Francisco and nearby San Jose, you’ll also find that many of the world’s most valuable companies are located there. (Facebook, Google, Apple, etc.)

These successful companies not only recruit employees from around the world, but they also pay their workers very high salaries. For example, Facebook’s base salary starts around $120,000 per year.

This results in thousands of people who not only have a lot of money to spend, but also need a place to live. It doesn’t take a rocket scientist to understand how real estate values in that area have skyrocketed.

On the other end of the spectrum, let’s take a look at a city like Caracas, Venezuela. Unlike San Francisco, Caracas has been losing its most successful residents who have been emigrating to other countries to escape the current oppressive Venezuelan regime.

The reasons for this mass exodus from Caracas are obvious. In addition to the Venezuelan Bolivar experiencing hyper inflation, which has melted away the wealth of almost all Venezuelans, simple public services and basic amenities are in short supply. For example, at one point, toilet paper was nearly impossible to buy.

This graphic shows the unbelievable migration of people leaving Venezuela. 2018, which is not accounted for here, is estimated to be the biggest year yet for Venezuelans leaving. There are literally millions of people who have left the struggling country in just the past several years. Source: MDP

Why would anyone choose to stay in a city like Caracas? Unfortunately, the majority of the population doesn’t have a choice. They have neither the money nor the resources to simply pick up and move to a different country. But, for those who do have that ability, they have left Caracas long ago.

This has created an oversupply of real estate with almost zero buyers. It’s literally the exact opposite situation as what’s happening in major cities like San Francisco, Shanghai, or Hong Kong.

Now, the point here is not to look at Caracas and say, “See, Caracas is in crisis, so clearly there is not a global property bubble.” The truth is that there are in fact many cities throughout the world that are extremely over priced right now.

Instead, by identifying the difference between San Francisco and Caracas, we can then look at other cities to determine what their real value is. There is always opportunity somewhere. You just need to know where to look.


We’ll be in one of ‘those cities’ later this year. It’s a place that has a horrible reputation and a destination that few have ever traveled to. But, once on the ground, you’ll find that there is a blossoming community of entrepreneurs and a real estate market that yields well over 10% per year in addition to significant capital appreciation. Join us as a guest.