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Seven Steps to Wealth - A short extract (Chapter 4, page 6)

It's all to do with supply and demand. Land is a commodity which is obviously limited in supply,
and for which demand is continually growing, as population increases. 'Bricks and mortar' are pegged to inflation and labour costs, so their price does go up - but they are not, as yet, in limited supply: buildings are pulled down (sometimes, before they fall down) and are easily replaced.

If you extract the land value from the growing value of house prices over a 30-40 year period, you can see that the land actually increases in value by nearly twice as much as the house value. As a compound effect, land in any 10 year period shows capital growth of around 15-20%, depending on location. The building component depreciates, effectively reducing the property's investment value - although inflation can camouflage the lack of capital growth. (During the '70s, just about everything went up in value by 10-15% per annum, but the lower inflation rates of the '90s have unmasked the real extent of growth).

Unfortunately, if we are starting out with limited capital, we can't just buy land: we need a vehicle for generating income to service our debt. That vehicle is property rental. But knowing that the land is the appreciating component, we need to acquire rental properties with the highest possible proportion of land content.