Feb 06

Warren Buffett Methodology Applied to Real Estate

1. buy smart (well located property purchased low: be last not first)

2. use leverage (OPM/mortgages)

3. add value to the portfolio (animate it)

4. hold (ignoring market cycles while it appreciates and you pay off mortgage debt while enjoying free cashflow too)

5. refinance to take out capital (tax free)

6. buy more property!

Does it work?

$1 invested in Berkshire Hathaway in 1965 = $15,600 in 2016

vs $1 invested in S&P (Standard and Poor’s stock market index) in 1965 = $110 in 2016.

[Source: Bloomberg Businessweek Jan 18-24, 2016]     

Minto’s Irving Greenberg applied this formula in real estate; Minto’s residential rental portfolio grew from 0 in the 1950s to 34,000 units in the 1980s, producing free cashflow of about $40 million a month.

Irving also told me the single best day in his business career was the day Ontario’s government introduced rent control–it drove other landlords

out of the industry and reduced new supply so vacancies went down, occupancies increased and rental rates firmed up. 

Supply actually dropped for a while as landlords converted to condos, which they then sold off. 

Mr Greenberg was also able to buy many buildings at reduced prices as landlords panicked to get out of the business. This was also the single worst thing government ever did to hurt low income renters since lower vacancy rates remove choices for the most vulnerable part of society–landlords will always choose DINKS (double-income-no-kids couple) over a single mother with a child. 

Anyway, in real estate you make money when you buy, not when you sell.

@ profbruce @ quantum_entity

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About the Author

Bruce is an entrepreneur/real estate broker/developer/coach/urban guru/keynote speaker/Sens founder/novelist/columnist/peerless husband/dad.