Warren is one of my favorite investors and while he is mostly known for being one of the Real Estate Investors who is wealthiest and most successful investors of all time the thing I like about him most is that his advice is easily understandable. I took some of Mr. Buffett’s famous quotes, and applied it to investing in income producing real estate.

QUOTE #1

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

Translation to RE: Look for out of favor, overlooked markets. Also look for markets that have gotten ahead of themselves and investors who could be paying too much. Also pay attention to what the brokers in the market are doing and saying.  If everyone is flipping houses beware. If apartment builders are erecting cranes to build high rise expensive apartments look at the affordable rents to pop. Bottom line look for the fluctuations.

QUOTE #2

“Only when the tide goes out do you discover who’s been swimming naked.”

Translation to RE: You have to be in the real estate market at all times not just some of the time or you will miss when the tide goes out and leaves others exposed. You cannot just buy real estate at the bottom. Also look for investors who get overextended or pay too much as the time will come when those investors will be sellers.

QUOTE #3

“Our favorite holding period is forever.”

Translation to RE: The beauty of income building real estate is it reduces debt over time and tends to double in price every 10 years or so building indestructible long-term wealth that produces income and services the property. That being said you must be able to hold on during years of pullbacks. The two biggest mistakes I have ever made in Real Estate was selling any of it and not buying more.

QUOTE #4

“Risk comes from not knowing what you’re doing.”

Translation to RE: Knowledge is power in real estate and you have to collect it constantly about your market.  Once you find a property you like you must know how to properly analyze to determine cash flow, debt service and continuing to improve the property over time. Also, you have to know how to refinance and when and how to exit the transaction to determine when and where to purchase.

QUOTE #5

“Be fearful when others are greedy. Be greedy when others are fearful.”

Translation to RE: Because I am so conservative I have always moved to markets overlooked by others. This is extremely counter-intuitive and requires tremendous personal certainty because most everyone will suggest you are wrong. Always be looking is what the real estate investor must do at all parts of the cycle and keep your powder dry (cash) so you can seize opportunities and improve the property when necessary. Also, no matter how hot a market gets good deals can always be found – always.

QUOTE #6

“Wide diversification is only required when investors do not understand what they are doing.”

Translation to RE: When you find a market, you understand keep investing in it. Income investing real estate cannot be replaced by any new technology development or app. I have most of my wealth invested in income producing apartments because I KNOW this product will persist through time. Apartments will be desirable housing solutions thirty years from now at a time when you probably will no longer drive your own car.

QUOTE #7

“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”

Translation to RE: I never assume the agent’s optimistic appreciation of the property when I make a purchase. I base all my assumptions on worse case scenarios and actually assume there will be no appreciation over 10, 20 and even thirty years. I base my entire decision based on the trailing 12 months to produce income and then look at a worst-case scenario situation whereby the property can only break even. None of these scenarios are likely to happen and will leave you with tremendous upside surprises in the future. It also forces you to make good decisions when pulling the trigger on a purchase. I own over 4000 units today and go to sleep every night knowing no matter what happens all is well.

QUOTE #8

“We will reject interesting opportunities rather than over-leverage our balance sheet.” 

Translation to RE: Never take on so much debt or investor obligations and be sure you don’t get yourself jammed by time lines that temporary contractions or market cycles force you to have to sell. When the housing collapse took place in 2009 it affected everyone in real estate but because I wasn’t bound by too much debt or investor demands I was not forced to make moves at a time not conducive to a seller.

QUOTE #9

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Translation to RE: The best returns I have ever gotten from real estate was on properties I paid the highest price. Contrary to what most real estate investors look for price is not the most important thing in income property investing. Buy the best-located apartments you can even if it means paying a higher price.  Also look for cities and regions where there is population growth and migration patterns for workers and jobs. Location to urban access, water, views, schools highway access are all things you should be willing to pay extra for because someone else will pay more in rent and more when you sell.

QUOTE #10

“A public-opinion poll is no substitute for thought.”

Translation to RE: Had I listened to public opinion I would never have bought my first deal, would have never used debt and would not have made concentrated investments in out of favor markets. The local brokers who sell real estate and don’t invest in it don’t know what is too much or too little. If they did they would have been buying property the entire time. I once bought a piece of property in Florida and the broker and the seller had been influenced by public opinion and underestimated the upside on the deal. They thought it was a fair price I paid and I thought I was stealing it because I had studied it against other markets, not just the one they were in. I paid 32 million and recently was offered almost $50m. Do so much homework that you trust yourself despite the public’s opinion.

Be great,

GC, Cardone Capital.