Warren’s real estate wisdom

Warren Buffet’s letters to shareholders in Berkshire Hathaway, his investment company, have become legendary. And while much of his advice is about investing in general, Warren holds a significant property portfolio and his sage guidance applies to all forms of investment – including real estate.

Invest for the long term

“Our favourite holding period is forever.”

According to Warren, your real estate investment is a long-term commitment and expecting a short-term return places you at the mercy of market fluctuations. Warren’s approach would be to carefully research your intended investment – the neighbourhood, property type, expected returns, future development plans or demographic changes – to ensure it will deliver solid returns over the long term.

Manage your risk

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety.”

But, as Warren pointed out in 1997, such certainty is hard to come by and the logic holds true for any investment, including real estate. Understanding your investment and managing your risk is vital.

When interest rates are low and the market is rising, it’s tempting to over-extend yourself. But good times don’t last forever and it’s sensible to allow yourself a financial buffer so you’re protected throughout the market cycle.

Look for value

“Price is what you pay, value is what you get.”

To paraphrase the great man – it’s better to buy a good house for a fair price than a fair house for a good price. Your investment strategy should focus on quality assets that will increase in value over time, not bargains that will need another round of investment before they can offer good returns.