Real Estate tips from Warren Buffet

I am a big fan of Warren Buffet, just like most of the investors. Not because he is the third richest man or anything, but because his ideologies makes sense to me. Oracle of Omaha, Billionaire, The most successful investor in the world are few of the phrases used to describe this man. So I thought, why not use his ideologies in the world of Real Estate Investments. 

The Basic premise “that homes increase in value over time” – is true!

It’s a totally sound premise considering the fact that the worth of any home will only go up with time because the value of any currency will go down. (Inflation to be precise, which decreases the worth of rupee making things costlier with time). The 2008 recession was caused due to the same belief. Americans started buying homes thinking that prices will keep rising with time. Banks kept on lending, well why wouldn’t they (they were also under the impression that prices will keep on rising). Clearly this assumption was wrong and God knows we have paid our dues for this false belief. 

Buy Cheap

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

Everyone of us wants to do that, buy at the cheapest price possible. If only there was a way to know that lowest price. Affordability is the best way to decide whether it makes sense to make that investment. And EMI/income ratio is a good parameter to judge that. Generally, if you have no other loans to pay, 35% is considered a healthy number to judge that affordability. EMI/rent ratio is another major parameter. This tells us how much we stand to gain if we were to rent out our apartment as compared to the price that we are about to pay. Ofcourse, the ideal scenario would be when we are able to pay out our EMIs just through rents. That way, we could have a complete gain from capital appreciation. “Risk comes from not knowing what you are doing”.  

But, getting a cheap buy is only in distressed times when the entire market holds a negative view. It is impossible to predict market in the short term, even for Buffet. You need to have a sound judgment, and be prepared to go against the tide when the time comes. “I will tell you how to become Rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful”.  

Buy as if you were ready to own it for your lifetime without a sweat.

“Our favorite holding period is forever”. Buffet has always preached that you should invest in a stock only if you can see its value fall to half at what you bought and still feel comfortable about it. Buy only if you have the guts to hold it for life time. The same applies to Real Estate. I have always been a proponent to buying homes if you have a need. Even investment in second or third home is worth it only if you are not speculating. If you buy for ever escalating prices and at unsustainable EMIs, you are digging your own pit. Your most coveted dream might turn into a nightmare for you. Buffet advises a long-term hold strategy to homeowners. The third richest man on earth still lives in a 5-bedroom Nebraska home he bought around 50 years ago.      

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