Income Follows AssetsFebruary 15, 2015
5 lessons Warren Buffett taught me about property investing
Australian’s who are investing in the USA real estate market are adding assets to grow their personal net worth. When was the last time you took stock of your assets? Do you have an asset and liability statement? It is important to know your net worth as an investor in order to measure and plan on how to grow your asset base, continuing to build real wealth. Think of your asset and liability statement as your adult report card. As an investor you have to keep this simple phrase in mind everyday, “income follows assets.”
In 2009 I read Warren Buffett’s biography, Snowball, for insight into the methods of the America’s favorite investor. Here are 5 key points that you must remember as a real estate investor.
- Invest for cash flow – Cash flow is king! Both shares and property are assets. Buffett invests for dividends or cash flow from the shares that he owns. Like Buffett, you should be investing in cash flow positive USA real estate. The more positive cash flow assets that you own, the wealthier you will become over time. Income follows assets.
- Build your asset base – Stock markets and real estate markets will move up and down over time. Warren Buffett invests to hold for the long term and is unfazed by temporary market fluctuation. Buffett never loses site of continuing to build his assets. As a matter in fact, he hunts opportunity and makes big moves when there is uncertainty among the majority of investors. If your property is delivering income, then you are positioned to push through a market downturn cycle. Historically, there are more renters when the US economy is recovering. Owning one property is where all USA real estate investors begin to build their asset foundation. You will have to continue building your American real estate portfolio over time to maximize your overall wealth.
- Have a mentor – Warren Buffett didn’t just “get lucky”. He actively sought out the best teacher of his time, Benjamin Graham, the author of The Intelligent Investor, the stock market investing bible. Graham lectured at Columbia University in New York City and that is where Buffett decided to attend college in order to learn directly from Graham. Warren immersed himself in the teaching of Graham and sought out and surrounded himself with the top known investors of the time living in New York City. After graduation, Buffett’s first attempt to work for Grahams’ New York firm failed. However, persistence paid off and Warren was offered a position with Graham’s company in 1954 where he began working alongside his mentor. Learning to become a skilled and profitable real estate investor is no different. You want to learn from someone who has “been there, and done that.”
- Find a partner– Warren Buffett’s long time business partner is Charles Munger. Both men were successful investors when they met in 1959. Munger’s background as a lawyer combined with Buffett’s skill of analyzing companies complimented each other. Each possessed a skill and insight the other didn’t have. This is the essence of a partnership and real estate investing is no different. Like-minded property investors leverage their knowledge and skill sets with others to accomplish more than they would individually.
- Hire good managers – Warren Buffett builds teams and trusts them to manage his assets. This allows him to spend his time hunting the next opportunity. Intelligent property investment requires a business approach to structuring and looking after your USA real estate portfolio. You have to recruit and manage your A-Team. Your American property managers will play an important role in the ongoing profitability of your US property assets. Make sure that there is a good communication system in place and that you work on building strong business relationships with each member of your A-Team.
Make the decision to be an active investor just like Warren Buffett. Get together with other like minded real estate investors to compare notes and share ideas. Continue to learn new strategies. With concentrated effort and experience we build our investor muscles and grow our wealth. Focus on building your assets and income will follow.