If you’re investing in real estate, then it only follows that you can call yourself an “investor.” Right? So, if you are an investor, what special knowledge are you bringing to your daily investment decision making process? In this podcast episode, Bill draws investor wisdom from an “investor extraordinaire” — the “Sage of Omaha,” also known as Warren Buffett. Bill examines some of Mr. Buffett’s better known investing quotes in light of how they might apply to real estate investing today.
When you think of top real estate investors, Warren Buffett isn’t likely the first name that comes to mind. Maybe people like Donald Bren, Sam Zell or Donald Trump are more likely. But as a top “investor,” (or should I say, investor extraordinaire), his name would definitely be at the top of the list. His investment fund, Berkshire-Hathaway, is an American multinational conglomerate holding company headquartered in Omaha, Nebraska that has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 with dividends included for the same period), while employing large amounts of capital, and minimal debt.
The success of the company/fund is a direct result of it’s control and leadership by Warren Buffett, who serves as chairman and chief executive, and Charlie Munger, the company’s vice chairman. In the early part of his career at Berkshire, Buffett focused on long-term investments in publicly traded companies, but more recently he has more frequently bought whole companies. Berkshire now owns a diverse range of businesses including confectionery, retail, railroads, home furnishings, encyclopedias, manufacturers of vacuum cleaners, jewelry sales, newspaper publishing, manufacture and distribution of uniforms, and several regional electric and gas utilities.
According to the Forbes Global 2000 list and formula, Berkshire Hathaway is the third largest public company in the world, the ninth largest conglomerate by revenue and the largest financial services company by revenue in the world.
Berkshire is currently the seventh largest company in the S&P 500 Index by market capitalization, and is famous for having the most expensive share price in history with a Class A share costing around $300,000 each. This is due to the fact that there has never been a stock split and Buffett has stated in a 1984 letter to shareholders that he does not intend to do so.
Residential brokerage HomeServices of America Inc. has grown exponentially since it was acquired by Warren Buffett’s Berkshire Hathaway Inc. in 2000. The Berkshire Hathaway HomeServices name has been franchised to 1,330 offices and more than 45,000 agents, the newspaper reports. The number of deals the company brokered between homebuyers and sellers grew 34% last year, propelling HomeServices to the No. 2 residential brokerage spot in the country, trailing Realogy Holdings Corp., Bloomberg reports. Part of this growth is attributed to a number of recent acquisitions, including the purchase of rival firm Long & Foster Cos. last year. Even with the jump in close rates last year, Buffett told shareholders more growth is on the horizon since the company only facilitated approximately 3% of the home-brokerage business in the U.S. this year, according to Bloomberg. “That leaves 97% to go,” Buffett said in his annual letter to shareholders.
You must ask yourself: Am I investing in a market? Or am I investing in a DEAL? If the deal is right and your exit strategy is clear, then the market conditions become much less relevant.
For guidance on investing in challenging times, who better person to turn to than Warren Buffett? Right? I’ve taken a handful of some of the more famous Warren Buffett quotes and translated it into practical advice for “real estate investors like you. Let’s get going…
Warren Buffett: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
Old Dawg’s REI Translation: Today’s market fluctuations are your friend because they’ve scared off your competition–other investors. They’re also your friend because the fluctuations have created a flood of motivated sellers. And as any savvy investor knows, buying from motivated sellers is the only way to make it in this business.
Warren Buffett: “Only when the tide goes out do you discover who’s been swimming naked.”
REI Translation: Keep plenty of tools (investing techniques) in your tool belt so that you can adapt to a changing market. What worked best in 2006 doesn’t work best in today’s market. Today, we’re seeing first hand that those with only one investing strategy are extremely limited.
Quote #3 – The Time to Think Short Term is Over
Warren Buffett: “Our favorite holding period is forever.”
REI Translation: To build true long-term wealth, you must buy and hold real estate and be willing to hold for the long term.
Quote #4 – Continuing Education
Warren Buffett: “Risk comes from not knowing what you’re doing.”
Old Dawg’s REI Translation: Things are always changing and evolving in real estate. Those who don’t know how to properly research markets and analyze enter, and exit real estate property transactions think today’s market is risky. Those who fully understand the intricacies of creative real estate investing continue to participate and profit.
Warren Buffett: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Old Dawg’s REI Translation: Now’s the time to buy. In real estate and in life, it’s almost always best to act opposite to the herd.
Warren Buffett: “Wide diversification is only required when investors do not understand what they are doing.”
Old Dawg’s REI Translation: Naive people are putting their money into stocks, bonds, and savings accounts right now. Smart people continue to invest in real estate, and they’re picking up more bargains than ever.
Warren Buffett: “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”
Old Dawg’s REI Translation: If you’re concerned that you cannot sell for full value, then buy lower – at about 60% of value – and sell lower – at about 90% of value.
Warren Buffett: “We will reject interesting opportunities rather than over-leverage our balance sheet.”
Old Dawg’s REI Translation: Sometimes the best real estate deals are the ones you don’t make.
Warren Buffett: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Old Dawg’s REI Translation: If you’re going to hold a property long term, it’s far better to buy a wonderful house at a fair price than a dump at a bargain.
Warren Buffett: “A public-opinion poll is no substitute for thought.”
Old Dawg’s REI Translation: Most Americans think that now is a risky time to get into real estate investing. Do they know more than you? Most likely not. Only a handful of Americans know the specific techniques for profiting in today’s market. And that’s because they read articles like this, they buy REI courses, they attend their local REI meetings, etc.
Warren Buffett: “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Old Dawg’s REI Translation: Don’t worry what the masses are doing. Follow the advice of successful real estate investors, and use their techniques to profit in today’s market.
Warren Buffett: “ You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it.”
Old Dawg’s REI Translation: Every deal must work on paper before it will ever work in real life.
Warren Buffett: “I really like my life. I’ve arranged my life so that I can do what I want.”
Old Dawg’s REI Translation: Remember, that’s what real estate investing is all about. Freedom. Arranging your life so that you can do what you want to do when you want to do it.
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