What would Warren Buffett say about how I approach property investing?

What would Warren Buffett say about how I approach property investing?

  23 Dec 2023

What would Warren Buffett say about how I approach my property investing?

And why do I even care?

Well… Buffett who is 93 years old is consistently ranked amongst the world’s richest people, is arguably the most successful investor of the 20th and 21st centuries, and has an estimated net worth of $117 Billion.

This means, he’s earned (on average) over $11 million each and every year of his life, which is thousands of times more than the average worker in Australia earns.

Anyway… I think he’d be impressed with how I invest because there are some similarities in our investment philosophies.

Now don’t get me wrong…

Clearly, I’m not in Warren Buffett’s league as an investor and Buffett much prefers investing in companies than buying real estate.

And of course, he really wouldn’t bother himself with how I do things, so all this is hypothetical.

Having said that, I’ve grown a very substantial property portfolio over the last almost 50 years of investing that has given me financial freedom and choices in life, so I thought it would be an interesting exercise.

Here’s what I’ve done…

When I first started investing I really didn’t know what I was doing and I made more than my share of mistakes.

Luckily around the time, I bought my first property in the early 1970s Gough Whitlam became prime minister and inflation in Australia rose from 5 per cent to over 15 per cent.

Now it’s amazing how rampant inflation pushes up property values and helps cover up mistakes.

The problem is, that one of the worst things that can happen to a novice property investor is to get it the right first time!

It gave me a false sense of confidence and invincibility.

However, rising interest rates, a recession, and falling property values in the early 1980s taught me a few important lessons.

Fortunately, I developed an investment strategy over the years, (I really didn’t have one when I started) using a Top-Down approach to select the right location, and then my 6 Stranded Strategic approaches to ensure I only buy the type of property that will outperform the averages in that location:

Top Down Approach

I recognise the location will do 80% of the heavy lifting of my property’s capital growth, therefore I only invest in selected suburbs of our 3 big capital cities.

Of course, I recognise that other areas are going to exhibit capital growth as well, but I don’t fight the big trends – I recognise that the big capital cities with more jobs are going to be created and in particular higher paying jobs (Skill level 1 and 2 jobs) which are going to attract more affluent people who can afford to and will be prepared to buy properties which will keep pushing a property values.

I then invest in the more affluent, established money suburbs with a high proportion of what the ABS classes as Skill level 1 and 2 workers – people who earn more than the average.

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