How to Apply Warren Buffett’s Investment Approach to Real Estate

The opinions of entrepreneurs’ contributors are their own.

At the age of only 11, Warren Buffett learned one of his first lessons about investing. He bought three stocks at $ 38 that quickly fell to $ 27 before slowly rising back to $ 40. Young Buffett sold the stock for a small profit. That stock later rose to $ 200 per share. Because he regretted selling so quickly, he realized the importance of patience in long-term investments.

Warren Buffett learned to play the long game, and his investment approach can be applied to other areas that some people don’t consider – like real estate. Buying real estate is the most significant investment most people will ever make. It’s hard to imagine that it will ever be worth paying such a high price and keeping up with the monthly payments, but with patience it pays to make that long-term commitment. Learn from one of the world’s most successful investors and change your perspective on how buying real estate (both personal and commercial) can affect your life and business.

Here is how.

1. Make long-term investments

“Nobody buys a farm because they think it will rain next year … they buy it because they think it will be a good investment over 10 or 20 years.”

Young people with just a few years in business may find it less scary or confusing to focus on short-term gains, but long-term investments are the really profitable ones. Warren Buffett doesn’t care about getting in on the first floor or waiting for the perfect time – he’s looking for solid, long-term investments, like buying real estate. Observing his father, learning from his mistakes, and building on those experiences taught Buffett early on the benefits of a long-term approach.

Related: Do you want to be a millionaire? Follow Warren Buffett’s 4 rules

When you focus on the short term, the little setbacks can be difficult to avoid. So instead of jumping on the bandwagon of a fad, invest with a broad perspective. I’ve been watching business and real estate for over 45 years, watching trends come in, get hot, cool down and completely forgotten before coming back like it was brand new. With a broader frame of reference, you can easily see that real estate pays off more than any promise to get rich quick.

2. In the worst case scenario, stay safe

“Only buy something that you would like to hold after the market is closed for 10 years.”

With a long-term outlook, Warren Buffett knows how to plan for worst-case scenarios. Meeting your basic needs should always be a part of this plan. An economic crash can leave you with nothing but invest in real estate and you will always have a place to live or work. Rent a building for $ 10,000 a month and if you leave two years later you’ll have lost a quarter of a million dollars and nothing to show for it. Buy and sell the same building after two years and even if you just break even get back payments for those two years. Not to mention the income tax deductions that will save you tens of thousands of dollars.

Worst-case scenarios can happen even in the best of times, but real estate investments will cushion your case. In 2001 I lived in California. My company was worth $ 100 million and I was blown high. Then September 11th happened and everything disappeared overnight. After 10 years of working my ass off trying to build my business, I ended up with nothing to show for. But I still had my house and that saved me. When I sold it a year later and moved to Florida, the money I made selling it was all I had for my name. While spending no time on my house at all, I made over $ 100,000 just by letting the market flow – money I used to get my next multimillion-dollar business started.

Related: Real estate investments are close to a Gen-Z makeover

3. Patience brings great rewards

“Today someone is sitting in the shade because someone planted a tree a long time ago.”

The core of Warren Buffett’s investment strategy is patience, a skill that requires little effort but makes a big difference. Not everyone knows how much money they can make living in their house and paying their mortgage for years. A working class retirement can be around $ 100,000, but buy a home for $ 100,000 and pay it off over 20 years and your net worth will go up because that $ 100,000 home is now over $ 400,000 is worth everything from a passive investment in real estate – your home.

No investor can make 120% every two years, but invest in a home and you can do better: $ 150,000 made in the stock market in two years still has a 25% capital gains tax, but live just in your home time and the government will let you sell it tax free, up to $ 500,000 in profit per couple. House prices are likely to rise faster than any other stock, and last year in Florida they were up 20%. I bought the building I’m currently in over a year and a half ago for about $ 2.2 million, spent about $ 400,000 on repairs, and I’ve already made nearly $ 1 million in additional equity.

Related: They are your best real estate asset

You don’t have to be Warren Buffett or his Midas touch to excel in real estate, but I recommend two rules: First, in real estate, if it sounds too good to be true … buy it! Ignore the millions of “what-ifs” holding you back from taking action. Second, no matter how big the mistake you make in the real estate business, you will look like a genius in 20 years. Whether you are looking for a new place for your family or your business, make a commitment, stop questioning, calculate the down payment and invest in real estate. Years later you will thank yourself.