Benjamin Graham & Warren Buffett method of value-based investment

As an investor, I’m a little obsessed with the Benjamin Graham/Warren Buffett
method of value based investment–analyzing the intrinsic value of an asset and
attempting to buy it below that value, minus a safety margin.

For
example, if my target asset is a $100 bill, and my safety margin is $20, I want
to buy that $100 bill for less than $80.

I’ve spent a long time trying
to apply the same principle to real estate investing.

I tried blindly offering 80% of asking price on every 1-bedroom, 1-bathroom condo for sale in Ottawa’s downtown core. That didn’t work
out.

Robin Chahal Ninja Real Estate Investor

I bought an older house that needed some work for 80% of asking price. After fixing it up and investing a great deal of time, I ended up
selling the house for a substantial profit, but after further analysis, I
realized I only made $2.70/hour for all my work on the deal.

Eventually I stumbled upon tax sale properties where I could buy properties
at 50% of fair market value, but the number of properties I can buy in any given
year is very limited, and it relies on a lot of luck.

Prof Bruce has shown me another way to buy real estate for less than intrinsic
value in a much more reliable and repeatable manner–by seeing value where the market
does not. For example, buying a single family dwelling and converting it into a
duplex or, better yet, buying a

single family

dwelling then converting it to a duplex with a coach house in the backyard.  

Being able to see value where others do not, and being able to create value
where others cannot, makes it much easier to buy assets for much less than that
value.

Robin Chahal (center) looking for value

In addition to buying smart, Mr Buffett’s approach requires that you have good quality management in place with excellent operational capabilities who can both hold down costs and boost revenues via top notch sales and marketing as well as through product/service differentiation. Lastly, Mr Buffett teaches us not to buy and flip, but to buy/improve/hold and then refinance, taking out cash (tax free) so you can do it all over again. 

Does his strategy work?

$1 invested in the S&P (Standard and Poor’s) stock market index in 1965 is worth about $150 today.

$1 invested in Berkshire Hathaway (Mr Buffett’s holding company) in 1965 is worth over $15,000 now. 

Robin Chahal 

IT specialist real estate investor 

More from Robin Chahal, https://profbruce.tumblr.com/post/140496423914/analyzing-real-estate-deals