Investing in property ‘like a Buffet’

Most people have heard the famous quote from the Oracle of Omaha, Warren Buffet, which says, “Be fearful when others are greedy, and greedy when others are fearful.”

It’s the classic counter-intuitive investor’s creed. When everyone else is doing one thing, you should do the opposite.

Of course, Mr Buffet was referring to share market price cycles, but the theory can be applied to property as well.

I like this approach, but I also think there are a couple of important points to make about the idea of counterintuitive investing.

Firstly – let’s just recognise right from the get-go that it’s hard to do. Going against the crowd is a huge psychological hurdle to clear. Just look at the current state of play in property markets around Australia, for instance. FOMO (Fear Of Missing Out) is fuelling sometimes unrealistic offers from buyers – and stopping the momentum caused by the sheer weight of potential purchasers is going to be a hard task. In reality, many of these investors will get stung when markets turn, because they’ll have overextended themselves.

A second more important point I’d like to make is this – counterintuitive investing isn’t just about price movements. It can be on any facet of investing where you go against ‘common wisdom’, so long as logical analysis supports it.

Those who adopt the approach in a considered, rational way have an opportunity to reap huge rewards while other people are standing on the sidelines.

 

Breaking the mould

You may have heard the worn-out credo that you should always invest in a certain type of property if you want to get the best financial outcomes. According to the crowd, it’s normally second-hand, detached homes close to CBD’s that will bring the greatest gains.

But to me, the ‘facts’ just don’t ring true on this, and I see an excellent opportunity to go against the grain.

 

  1. Location

You can yield superior returns without needing to be next to a CBD. By applying the right kind of locational analysis, it’s possible to select suburbs with the right fundamentals for growth, while still being located well away from a city’s centre.

The ‘CBD-centric’ thing is just a lazy way of saying you should look for areas where there’s a density of population, the right kind of residents and plenty of necessary services and facilities. I use a range of suburban metrics to find suburbs across the nation that meet those guidelines.

The sort of measures I’m talking about are things like the owner-occupier vs renter ratio. This tells me a lot about the type of demand in each location. I also like to know what density of population is within a reasonable radius of the suburb. That way I can determine how easy it will be to rent or sell an investment.

How about the household demographics? Is the suburb dominated by above-average wage earners? How many cars does the average household have? What’s the level of education across the population? All these measures can point to an upwardly mobile resident group willing and able to spend a little more on their homes, and that feed in well for investors.

You don’t need to be in a near-city suburb to see desirable numbers for these measures.

 

  1. Property type

Buying just detached homes is a mantra I can’t abide by. These properties are fine, but it might mean investors are totally overlooking a golden opportunity to purchase a townhouse or villa.

A well-designed townhouse can deliver extraordinary financial results, not the least of which because they have a lower buy-in price than houses in the same suburb.

Townhouses and villas also tend to have a higher rental yield than a home, meaning you can afford to hold your asset for the long term. Also, most are in developments with an onsite manager, so your investment is getting constant attention. The bonus is that common areas like pools, driveways and landscaping are being well maintained.

These onsite managers also ensure you’re getting maximum rent from good quality tenants.

Essentially, it’s important you choose the right asset on an individual basis, and not just ignore a whole raft of possible properties just because you won’t buy attached housing.

 

  1. New vs Old

This is another ‘common wisdom’ falsehood that gets my blood up. Too many investors shun new builds. Often it’s because of sub-standard builders and developers constructing below-par product and selling it to underinformed buyers.

New property, done right, offers a raft of advantages over established homes.

For example, well-built new homes, either detached or attached, have lower maintenance costs. This ensures much better returns in the early years. Also, much of the property is covered by builders guarantee for around six or more years, meaning you won’t need to put your hand in your pocket to replace fitting, fixtures and finishes.

New homes are also very appealing to tenants. They have a ‘new car’ feel, so most renters are willing to pay a premium to live in them.

New builds are also tax effective. The depreciation benefits you get from new property are substantially better than what can be achieved with established homes. That means far more money in your bank account come tax time each year.

New property also delivers an opportunity to choose a floor plan and finish that will appeal to the largest cohort of tenants and future buyers. For example, if you’re in an area where most residents are families, you can ensure your asset has adequate bedrooms, bathrooms and living spaces to meet their needs.

 

As you can see being a smart counterintuitive investor is more than buying the price curve. You must look at all the elements and choose to walk against the herd. In the end, your contrary stance can deliver above-average outcomes with less stress and more freedom.

 

Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!

Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.

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