Warren Buffett’s Advice On Property
At some point there will be a Property Crash…or maybe even a property Tsunami! Maybe it will be Brexit…Maybe it will be interest rates….We do not have a Crystal Ball…but anyone that went through 2009 knows how bad it can be….especially if highly leveraged!
The last major Tsunami which hit Asia left a devastating 227,898 human lives lost across 14 countries. The property crash in 2008-2009 many more people were effected. Bridgers blewup….banks closed…people lost their primary residence….property investors lost everything.
As investors we look to the greatest investor ever, Warren Buffett.
We seek out Buffett wisdom as possible. We read his Berkshire Hathaway’s annual meetings, and if you need to know Buffett’s opinion on almost anything, they probably know it off the top of their heads. Warren Buffett is arguably the most famous investor of our time. He’s also one of the most successful. So, you may be surprised when we share with you how he thinks and invests with the prospect of an economic tsunami in mind.
At some point there will be another property crisis and most investors begin strategizing about what to buy, what to sell, and what to hold in the face of ups and downs, Warren Buffett does absolutely nothing.
He doesn’t try to predict market cycles or time his entrances or exits.
Buffett is famous for saying that he cannot predict the market—and anyone who says they can is not telling the truth. Therefore, he wastes no time contemplating what will happen in the future, especially at the macro level.
However with that said we feel prudence at all times should be at hand. This prudence in our minds is low leverage….yes low…like 50%LTV. We owned a bridging company and closed it in 2006 as prices were going mad and LTV were insane. For those who think we are paranoid….thank you….Just look at Ireland or even what happened in many places in the USA. More so we feel that capital repayment lowers our risk as we pay down our loans…..as well as we sell 1 or 2 of our projects in order to maintain liquidity. Even more than that, we don’t do off plan properties….we do old 100 year plus properties that need refurbishing and focus on Social tenants. The rational is, even in the worst economy people have to live and the Govt has to support those in need. Yes rates can be cut but compare this to a working tenant who loses his job. Which is worse?
Going back to Buffett,boils down to the fundamental stance that he views his decisions based on individual business and investment opportunities. He analyzes investments using a margin of safety and often completely ignore any predicted macro trends. When we buy, we buy below market value. We create value by our refurb or by the social housing contract.
No one has a crystal ball….but buying right….low leverage….liquidity by selling some of your properties you should be able to survive the next property crash.