Warren Buffet, in his recent annual letter to his shareholders, shared some lessons he learned from a couple of real estate investments. They are great lessons that we should all take to heart.
1) Keep things simple and don't swing for the fences.
2) Focus on the future productivity of the asset.
3) If you instead focus on the prospective price change of a contemplated purchase, you are speculating.
4) Focus on what the properties will produce and don't worry about their daily valuations.
5) Forming macro opinions or listening to the macro or market predictions of others is a waste of time.
While day trading stocks is very popular, it is hard to argue with the success that Warren Buffet has had in investing for the long term. The same is true in real estate. There are people that have made a lot of money by flipping properties but the people that have invested in real estate for the long term seem to have had the greatest long term success. As Warren said, "If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continue to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it." In his two real estate examples, he found something that would generate 10% return and hopefully provide some upside down the road. Not a bad model to follow.