Property Investment Tips from Legend Warren Buffett
Famed investor Warren Buffett is known for his investing prowess, but it’s not everyday we talk about how he’s made a success of his property investment endeavours.
In a 2014 letter to his shareholders, Buffett explained how he made a success of two key property purchases. The insights are still relevant today.
The following are seven sage pieces of advice we can glean from Warren Buffett’s example.
1. It's Ok to Not Be a Pro
Even if you’re new at all this, that’s ok. You can still make a success of property investment. But you must have modest expectations of what you can do. Be willing to put in the time and effort to get results rather than looking for get-rich-quick schemes.
2. If You Aren't Sure, Move On
It’s impossible to know exactly how an asset will do, but you should have a clear enough idea to feel confident. If it’s too overwhelming to figure it out, leave it and move on.
3. Avoid Speculation
Just because a property’s value has increased in the past is no guarantee that it will do so again.
4. Look at a Property's Potential, Not It's Price
The price tag on a property doesn’t always reflect what it’s capable of. Take the time to look at what the potential return could be as the property functions, not just how much you could get for it in a sale.
Under intended, normal conditions, if a property can generate a return of 10% or more, that’s a safe start. Think about what more you can do to improve that figure. Don’t let a property’s history of failure convince you that it’s a poor investment.
5. Take Opinions With a Grain of Salt
“My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following –- 1987 and 1994 -– was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.” – Warren Buffett, 2014
There’s no need to get overwhelmed in the flood of advice, speculation and opinions out there in the financial world. What matters is knowing how your property can and should deliver. Do your best to improve its returns and that’s what really matters.
6. Invest in Undervalued Properties
When banks repossess properties, they can end up with too many on their hands to handle. Banks don’t worry about smart investing, either. They just need to keep these properties afloat until someone else can afford to pick them up.
So because a bank owns a property with a poor history doesn’t mean that property is doomed.
This is essentially what Buffett initially did. He purchased properties that had not fared well in a market crash, saw their potential, and did indeed turn them around with astronomical success.
7. Get Help
Friends, family and other connections can be great resources when you don’t know much about a property or business. You don’t have to let a dearth of knowledge scare you away from successfully investing in property.
Warren Buffett, in fact, has only twice visited the farm he bought in 1986. And he’s never even personally seen the NYC retail property purchased in 1993. That shows how much he actually knows about them! Buffett isn’t shy to admit that consulting others is what’s helped him make those investments a success.
Make sure you seek advice about finance for your property. Getting the right loan deal can make a huge impact on an investor’s bottom line.
Contact us at Funding Options for a no obligations discussion about your property finance needs.
– Dom Cassisi, Managing Director