Warren Buffet’s Top Tips For Successful Property Investing

From across the desk..

There are few more famous or successful investors in the world today than Warren Buffet. He is known as the “Oracle from Omaha” and was recorded as the third wealthiest person in the world, with a fortune estimated at $72.7BN USD (~$100BN AUD) – yes that’s billion, not million, in the most recent Forbes Rich List.

His fortune derives from his share investing and his part-ownership of Berkshire Hathaway, a former textile company which Buffet bought in the 1960’s and then built in to an investing powerhouse, owning or part owning some of the most well-known brands in the world today.

Mr. Buffet is not known for his real estate investing, as he has only acknowledged investing in to two properties over the last 50 years – one a 400 hectare farm in Nebraska, and the other a share in a New York retail property. Both of these purchases were made after a collapse in their respective markets.

Recently, Mr. Buffet offered his insights in to the philosophy behind these purchases. It seems to me that those philosophies hold good today and should do so in the future. Which is why I wanted to share them with you.

Here are his five top tips and my comments:-

1 - You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

Mr. Buffet says that while you don’t need to be an expert, you need to know what you know and have a reasoned plan. Don’t try to make your fortune in one deal, stick to a steady path.

2 - Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.

Mr. Buffet says make your investment decision based on your best estimate of the future yield (rent) that the property will provide you. Don’t spend too much time relying on the past indicators.

3 - If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am sceptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

Mr. Buffet says do not focus on the future capital gain the property might earn – no one really knows what it will be. And those who do are likely to be wrong at least 50% of the time. Again he reiterates don’t look at what the property has done, focus on what your research indicates it could do or is doing in terms of return.

4 - With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

Mr. Buffet says to focus only on the future rental returns and don’t think too much about what the property is worth day by day. Make your best decision purchase decision and then move on. No point in actually or rhetorically “driving by” the property every day.

5 - Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

Mr. Buffet makes reference to what I call the “white noise” – the (mostly negative) media, the predictions of self-appointed (and often self-interested) experts, most of whom are not at the coal face of the market, investing their own money. Gather the best evidence you can and then make your own informed decisions.

You will notice that these five tips don’t talk about location, interest rates, price, demographics, economy or otherwise. They are high level concepts that in my opinion can be layered over just about any form of investing.

In these five tips, you are offered the basis for an investing plan to grow your wealth for life.

Thank you Mr. Buffet.

Interesting food for thought.

 

Excellent Rixter.

Love Warren Buffet... Here's a good BBC Documentary on him: https://www.youtube.com

 

It seems that the investment is more geared towards Cashflow / yield not so much about Capital Gain where most of the Australian investor is chasing.

Correct me if I'm wrong Rick, considering he is in USA not Australia.

 

I think he is looking at property investment with a stock market hat on.

 

For me what I like about his attitude is to assess the asset's value from a holistic perspective, how the deal stacks up now and in the future (not relying on high growth). That's one of the reasons I focus a lot on Value Adding deals, with an expectation of only moderate future growth. Any great growth is an added bonus.

 

Im not the brightest globe in the pack. But i really didnt understand most of it. It seemed so vague.....like my horoscope

I didnt learn anyhting from it .....unfortunately

 

Eh hem! Hey you! Don't drag the family name down

 

Well I suppose it was 12.21am when you read it.

 

I love Warren Buffet, i think he keeps it simple and uses common sense. Probably the most important thing I can take away from the post is looking at the bigger picture. Even though his market is in USA , we can still apply everything he said here. Also so true about the part where if someone promises quick profit, respond with a quick no. Doesnt mean you say no to everything, somethings could actually have profits but I know so many people who have been sucked into the get rich quick, promise of garunteed returns and get stuffed over.

Thanks for the post! My partner was actually reading his book this morning, I think I will be revisiting it too

 

When I was contemplating to invest in stocks a decade ago, one of the good things out of many bad ones was to read Warren Buffet principles, understand his strategy etc. One core principle that I fed my mind then was to be prepared for long term i.e. over 10-15 years with good selection of companies without bothering on news headlines from business papers on doom, gloom etc. Most of the stock investors I have met do not commit themselves that long which eventually makes them traders. I must admit I made good money and expecting to make some decent gains few years down the line. When I started learning about property investment this year, I found many similarities in the approach...good quality assets, long term outlook, not to flip very often, yields, ratios etc etc..Warren Buffet talks down property investment though..

 

Buying individual stocks for set and forget is risky as well. What about all the disruptive technology and ideas that have come out of late. Renewable energy, healthy lifestyle trends and unprecedented access to media, have all caused wealth shifts in the markets. If you bought something and then stopped listening to the macro "noise" you're also setting yourself up for failure.