Warren Buffett is arguably the greatest investor of all time.
He has a great track record of creating and maintaining his wealth through share investments, but many of his principles also apply to property investors.
So let’s look at some of Buffett’s investment principles and see how we can apply them to our property investing.
1. Adhere to a proven strategy
Buffett’s success has often been put down to his extraordinary patience and discipline, never deviating from his proven investment strategy even when faced with short term changes in the market.
This is a great lesson for property investors, as most don’t have a plan or adhere to a proven strategy.
If you don’t have an investment strategy to keep you focused, how can you hope to develop financial independence?
It’s too easy to get distracted by all the “opportunities” that keep cropping up. Unfortunately many of these supposed opportunities don’t work out as expected.
Look at many of the investors who bought off the plan or in the next “mining town hot spot”, only to see the value of their properties underperform.
Over the last few years as our property markets have turned the corner there’s a whole new generation of property “gurus” offering to tell you what to do with your money and what the next big opportunities will be.
And yes…I know some of these “opportunities” sound attractive, but I see some major pitfalls in some of them – I’ll explain more about what you could do in a moment.
2. Invest counter cyclically
Buffett is a renowned counter cyclical investor, advising:
“We attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
This is also the investment strategy of many successful property investors and has proven to be a winning formula for many who invested in property a few years ago when many predicted that property prices would fall further.
Some of our property markets turned a few years ago and some property investors have already made very significant profits over the last 24 months.
In fact I made some public recommendations last year and the year before that which set up some attendees to take advantage of what has turned out to be the beginning of a new property cycle.
I’ll be doing the same again in the next few weeks at my Property Market and Economic Update – just click here and get all the details and reserve your spot to find out how the next few years in property will be very, very different to the last few.
3. Sometimes it’s best to do nothing
A great quote from Warren Buffett is…
“The trick is, when there is nothing to do – do nothing.”
Yet many investors get itchy feet and want to do more, put another deal together or buy another property.
There are stages in the property cycle and times in your investment journey when it is best to sit back and wait for the right opportunities because wealth is the transfer of money from the impatient to the patient.
By the way…
I do not think this is the time in the cycle to do nothing.
There are still some great opportunities for those who know where to look for them.
Let me clarify that – there are definitely some places where you “should do nothing”.
There are clearly some markets you should avoid.
But there are also some property markets I would recommend you buy into and take advantage of the counter cyclical opportunities and I will lay these out to you at my upcoming Property Market Update seminar that I will be conducting in 5 capital cities in the next few weeks.
Click here for more details and reserve your seats now.
4. Specialise – don’t diversify
Buffett has adopted a focused investment philosophy investing the bulk of his funds in a few companies.
However, most advisers suggest diversifying.
This is really just playing the game of investment not to lose, rather than playing the game to win and leads to average results.
On the other hand, successful investors specialise.
They become an expert in one area or niche and reproduce the same thing over and over again getting great results.
I know this has worked well for me – for years I have invested in a particular type of property and it has grown my wealth.
Capital growth properties with a “twist” such as development potential that allows me to manufacture some capital growth and increase my returns allowing me to own high growth, high yield properties – the best of both worlds.
I will be explaining my system – my strategy (yes I have learned lesson number 1) at my upcoming Property Market and Economic Update 1 day trainings in a few weeks.
Click here for more details and reserve your seats now.
5. Invest for value
Buffett is a value investor who says…
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
And it’s the same with property.
You make your money when you buy your property but not by buying a bargain.
You lock in your profits by buying the “right property” – one that will outperform the averages in the long term because of its scarcity or the potential to add value.
It seems very clear that the next stage of the property cycle will be very different with subdued growth and some properties not increasing in value at all.
What worked for many over the last few property cycles just won’t work in today’s economic conditions … the easy ride is over (for those who don’t adjust).
Remember, the price you pay for a property isn’t the same as the value you get.
Successful investors know the difference.
6. Invest for the long term
Buffett admits he can’t predict which way the markets will move in the short term and he is quite certain no one else can either.
So instead, he takes a long-term view of the market saying if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.
Similarly those who have created wealth out of property took a long-term view.
This doesn’t mean buy and forget – you should regularly review your property portfolio.
When was the last time you checked to make sure you were getting the best rents or that your mortgage was appropriate for the current times?
Maybe it’s time to refinance against your increased equity and use the funds to buy further properties?
And sometimes it is appropriate to consider selling an underperforming property to enable you to buy a better investment.
7. Don’t invest in anything you don’t understand
During the boom years investors’ hungered for returns that took them into exotic terrain, whether they realised it or not.
Promoters often promised large profits using opaque schemes, and the same is starting to happen again as the new property cycle rolls on.
Warren Buffett never invests in anything he doesn’t understand – nor should you.
8. Manage your risks
Many investors don’t fully understand the risks associated with property investment and therefore don’t manage them correctly.
One common error is not having sufficient financial buffers to see them through from one property cycle to the next.
Smart investors have financial buffers in their lines of credit or offset account to not only cover their negative gearing but to see them through the down times like we experienced in the last few years.
They don’t only buy properties; they buy themselves time.
Another way smart investors minimise risk is to buy their properties in the correct ownership structures to legally minimise their tax and protect their assets.
That’s why I’m teaming up with Dr. Andrew Wilson, chief economist of Fairfax/Domain and property tax accountant Ken Raiss from Chan and Naylor as well as a group of local property experts at our 1 day trainings in 5 capital cities.
These experts will explain finance and asset protection strategies that work today so you can manage your risks.
And economist Dr. Andrew Wilson will explain what’s ahead for our economy and how this will impact our property markets – last year he got standing ovations at the end of his presentation.
Click here for more details of this seminar and reserve your seats now.
In today’s changing property markets it is critical you make your investment decisions based on facts, not headlines or guesses.
When you join us we will give you unbiased advice because we have no properties to sell.
A final lesson from the master is that both good and bad times will come and go with surprising frequency over our investing lifetimes, but if we have a plan and stay focused on sound financial strategies, we can gain financial independence through prudent investing.
I look forward to meeting you at one of these trainings – but please book now by clicking here because I won’t be conducting a training like this until well into next year – can you really afford to wait another year for this type of information?
I’m looking forward to seeing you on the day.