Wednesday, February 24, 2010

Residential Housing and Abraham Maslow ?

Often I get asked why I invest in residential real estate.  The answer might surprise some of you.  Abraham Maslow is the basis of why I invest in residential real estate.  Maslow created the Hierarchy of Needs, a theory in psychology about human motivation.  It was published in Maslow's 1943 paper entitled, "A Theory of Human Motivation".

Maslow's hierarchy of needs is often portrayed in the shape of a pyramid.  At the bottom, are the largest needs but also the most basic needs.  The higher up the pyramid, the less essential the need, therefore the smaller the shape.  At the top is the need for self-actualization - this a point of complete self fulfillment.

The lower four layers of the pyramid contain what Maslow called "deficiency needs":
A - physiological (including shelter),
B - security of position,
C - friendship and love, 
D - esteem.

With the exception of the lowest (physiological) needs, if these "deficiency needs" are not met, the body gives no physical indication but the individual feels anxious and tense.  The base needs, or the physiological needs are physical needs - food, shelter, etc.  The rest of the needs are mental and self esteem based. 

As a real estate investor, you can see the having a home is a basic need in a human's life, therefore it is one of the first two motivations a person has - food and shelter.  If you are a Survivor buff, you will always see the castaways look for food and a warm place to sleep before they worry about anything else. 

Commercial real estate is a more of a luxury and appears higher up the pyramid of needs.  In the middle of an economic crisis commercial stores can close, industrial plants can suspend shifts or product lines, but ultimately people will still need to eat and have a warm place to sleep.  Residential real estate is that warm place to sleep.

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