Show040: What Warren Buffet Can Teach Us About Investing in Real Estate

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“Risk comes from not knowing what you are doing."

Warren Buffet


I've always been someone who enjoys quotes.  Whether it's for an inspirational purpose or whether it offers me some time to personally reflect, I think there's a lot of power in words.

Despite the enormous lists of quotes that exist at our fingertips when we google search 'famous quotes' or 'quotes related to investing' I recently came across this Warren Buffet quote that immediately had me reflect upon the realities of investing in real estate.

There are many individuals out there, whether they are involved in real estate or not, that will argue that investing in real estate is risky.  I don't disagree at all.  When you're dealing with investing, financing, leverage there's going to be a certain amount of risk.

In reality, anytime we let anything out of our own personal control in life, we take a risk.  When we drop our children at daycare, we take the risk of someone else taking care of the most important thing in a parent's life.

When we start a new job or move to a new place, we take the risk of the unknown.

If you invest your money in stocks, bonds, mutual funds, etc. you take the risk of losing some of your money.

The truth of the matter is that there is risk around us everyday and we are inevitably going to take risks day in and day out.

So how does this relate to real estate investing?

When I thought about the quote I felt that Buffet had a lot of power in the concept of 'not knowing what you are doing."

If you are like my husband and me, we don't take decisions lightly.  When we are dealing with money, family, lifestyle we take our decisions very seriously and will research and be sure that we have looked at the different ways a situation can play out.

We are not impulsive or rash people.

This concept can easily be applied to real estate.

Don't make rash decisions; don't buy properties without running numbers; don't make decisions based off of pure emotion; don't invest in a property that you haven't looked at the many different ways the deal could go well or fail.

Do exactly what Buffet is saying indirectly, if you know what you are doing then the risk is not nearly as great.

No, just because you research a property and complete your due diligence and run the numbers extensively you're not going to eliminate all of the risk associated with investing in real estate.

You never know what the market will do or what a tenant may do to your property.

However, the risk will be substantially lower because you have strategically thought about your investment, made contingencies plans, and planned ahead for some things to perhaps go wrong.

You can never eliminate risk.  But by doing the hard work up front like you can prepare yourself and know exactly what you're doing with your business to lower the risk.

5 Things You Can Do to Lower Risk in Real Estate Investing:

  • learning and educating yourself about the real estate business
  • viewing as many properties as possible so you know what to look for
  • networking with others who are in the business and can teach you
  • running numbers on properties over and over again
  • managing properties on your own so that you understand what goes into property management



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