How the Real Estate Investor Thinks – Time and Planning Are Everything
Posted @ 6:13 pm - Filed under Capital Growth, Cash Flow, Investment Lessons
As I chatted with so many people at the National Association of Realtors (NAR) convention, held in the GasLamp section of downtown San Diego a few weeks ago, it became evident there were two kinds of brokers/agents. I didn’t attend the convention myself, though I did go to the ‘Real Estate BarCamp’ held all day Thursday, and written about here earlier. I also spent much time with many of them after hours both Thursday and Saturday, gettin’ the feel of future expectations from a pretty wide variety of fellow pros, all but one of which were in the home selling part of the industry, or vendors servicing home selling agents.
A few of these conversations were not only enlightening, but very revealing. The two kinds of brokers/agents? Using a broad brush, they generally fell into either the ‘now‘ group or the ‘long term/big picture’ group.
Their responses got me to thinkin’ more and more about how the real estate investor usually falls into the same couple categories. They’re either focused on the now, and possibly the following year or so, or they’re keenly interested in what strategies would be best applied over the next 10, 20, even 30 years. In my experience, which spans 40 years now, I’ve noticed a distinct difference between the two camps.
I love what Warren Buffet said the other day on Charlie Rose’s show: “There are no great deals.”
He went on to say that if the investor isn’t thinking big picture combined with viewing time in terms of decades, their myopic approach will cost them in terms of return, capital growth, and cash flow. He used his latest acquisition as an illustration.
How would you like to be able to casually announce you’ve just bought the Burlington Northern/Sante Fe Railroad? By his demeanor you woulda thought he just asked you to pass the salt, please.
Anywho, he went on to say that in all his years of searching, painstakingly uncovering every possible investment opportunity, he’s never found that so-called great deal. He realized one day, that there really aren’t any, or at least he’s never found one. The takeaway he seemed to want us to understand was that with the proper/prudent long term view, reasonable returns kick major booty. Now before you get off that quick rejoinder about reasonable is peanuts in your opinion, be reminded he just donated a double digit number followed by three commas and nine zeros to charity.
Apparently reasonably returns compounded over decent time periods do indeed generate positive results. I’m no stranger to to Mr. Buffett’s thinkin’, as I’ve adopted as much of his approach as I can fathom. I’ve been shoutin’ from the mountain tops to anyone who’ll listen — buy right, keep yer nose clean, sell/trade when the market lets ya, retire well.
Back to Warren Buffett’s new railroad.
He analyzed the business and came to several conclusions, some of which I’ll note here.
Railroads won’t be replaced for the next 1-200 years. The job of transporting widgets from Pittsburg to Phoenix can’t be outsourced to China. (Come on, that’s funny.) The capital required to create competition is virtually prohibitive. This will be a cash cow for Birkshire Hathaway into the next century.
It was a completely arm’s length transaction. It wasn’t in any way, shape, or form, a ‘great deal’. The return will be reasonable, which will, I suspect grow to a bit better than reasonable under the BH umbrella.
Several decades of acquiring reasonable returns = billions.
Apply that train of thought to your circumstances and imagine what’s possible if you stay on the right track for the long run. Kinda sorta excitin’, isn’t it?
Call me, I need a fix. 619 889-7100. Have a good one.
This entry was posted on Wednesday, December 2nd, 2009 at 6:13 pm and is filed under Capital Growth, Cash Flow, Investment Lessons. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
