Property The Warren Buffet Way

As the world's richest man, Buffet surely knows a thing or two about making money. His recent interview on TV revealed a modest man that has made exceptionally good decisions for more than 50 years.

Warren Buffet I was intrigued by how similar his views about buying and selling companies and shares were with our views here at Axis about property.

Let's take a look at the most important of Buffet's key principles and how they relate to investing in bricks and mortar:

Become an expert - stick to your knitting!

Buffet has spent a lifetime learning about companies, how to analyse them, historical trends and more. No surprise that his knowledge is encyclopediac and his decisions get better and better. In the program he also commented that he never stops learning. Apply the same approach to property and you will make better and better decisions over time.

You could become an expert in one country, or one type of property, or just in your local area. It doesn't matter so long as you DO become an expert!

Manage with a 'light touch'

It may be surprising, but Buffet lets competent managers get on with the job. He runs the business by looking at the numbers. How many investors develop a real angst about managing property! Find a good local expert, make sure they report as they should, and let them get on with it. My personal successes in property come when I haven't visited for three years and don't know the tenant!

Make unemotional decisions based on the numbers

I was really surprised to hear that Buffet often buys companies for tens or hundreds of $ millions, without ever visiting. He got a tour of Microsoft by Bill Gates one afternoon and jokingly said that it was more time than he had ever spent touring one of his companies.

So do you really need to view a property before buying? I know the jury is split on this issue, but if you genuinely have the information and facts that you need, a visit is often a luxury rather than a necessity. If you are buying abroad this is even more relevant.

People skills are everything

Buffet made a point of saying that the most important certificate on his wall was the successful completion many years ago of a Dale Carnegie personal development course. He is a master of developing relationships and getting his way in often complex negotiations. Bring these skills to your property investment dealings and see more and more deals fall your way.

Use capital effficiently

This was a classic Buffet statement. He will happily take profit from one business and use it to invest in a completely different business, if the numbers show better returns! It's what you should be doing to maximize the returns through property investment.

Frequently I point out to investors that they could be using money for greater return only to be told "this is the way that I do it". That's fine provided the investors truly understand what they are missing by NOT approaching investment with a degree of flexibility. Certainly, if you want to make the most of your capital, then being willing to make different investments as time progresses will enable you to generate the best returns.

Do what you do best, and let others do what they do best

You can't be good at everything. So surround yourself with people who can make up what you lack in certain areas. I was amazed to hear that Buffet is giving $30 billion to the Bill and Melinda Gates foundation to give away on philanthropic endeavours. He was asked why he didn't create his own foundation. The answer..."I'm better at making money than giving it away so I'll let Bill Gates do that bit". Truly awesome.

Find the people you need to bring the skills and expertise that you are missing - then you will be formidable.

Let time be on your side

Buffet has held some stocks for around 50 years! That's astonishing. Whilst most fund managers change their portfolio to reflect the 'latest greatest thing', Buffet buys on fundamentals and if those don't change, neither does he. He holds shares through upturns and downturns. Is it the right approach? Well, he's now the worlds richest man so I guess he got it mostly right.

The lesson for us property investors is to think long term and stay with our investments through the property cycles. It doesn't matter where you buy in the cycle - you will always make good money if you wait long enough. This is a warning for 'get rich quick' type deals which are never an investment play but more speculation. That's fine so long as you recognise what you are doing and assess the risks. But for solid long term growth and profit stay with your investments for years... and years... and years.

Don't sell!

Clearly if you hold property long term then it also means that you don't sell. Again Buffet shows us the way. It would be easy to bail out the moment that a business hit problems, or the sector fell out of favour. Buffet has a longer view than this moment by moment knee jerk reaction. Many of his greatest gains have been companies he has backed for decades.

We need to do the same with property. In my many interviews with property millionaires the single common thread was that they all told me they had sold property over the years and lived to regret it. Buy and hold is the mantra. Buy and sell is a good investment proposition for maximum returns, except in a few specific instances.

If you've enjoyed this article and would like to explore your personal strategy for property investment with a senior Axis Portfolio Manager then we'd be pleased to make time for you. All you need to know is here.

Live with Abundance!

Rod Thomas