Pearls of Wisdom from Warren Buffett (part 2)

In last fortnight’s blog we discussed Warren Buffett’s quote on value and today we are going to run through another of his pearls of wisdom on investing.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” Warren Buffett

While this quote is specifically about investing in companies, the theory is the same when selecting any other asset class to invest in – including property.  Buy a quality property at fair market value rather than a low-quality property at a discount.

With the power of compounding growth the small amount you may get discounted of a lower quality property will be minuscule compared to the higher growth better quality properties may return. See below for a fictional scenario to show the power of compounding growth and why selecting the right property is so important.

A $500,000 property grows at 7.18% per annum for 20 years:  The value would be $2,000,000

A $500,000 property grows at just 2% less per annum for 20 years:  The value would be $ 1,375,000

That is a whopping $625,000 in difference over a 20 year period!

This is something that investors in Australia need to place a lot more importance on. Unfortunately, one of the more common requests we continue to get from would be investors is to try and get a discount on a property. One thing that is certain in property, is that unless we are in a highly depressed market, a high-quality property is never discounted and discounted property is never high quality.

Think of the suburb you live in. When is the last time a property sold for what you would consider a bargain, where was it located and how does it compare to the rest of the suburb?    When buying quality property for investment, the best we can hope for is buying at true market value, not an inflated price set by an agent or the developer.

This is why Nyko Property requests a valuation for every project we approve. In a hot market, this can make things difficult. More than once Nyko Property has found a fantastic project in a great area, that we were confident will perform, but the developers were not happy with the valuation price.

Now it must be said, developers are hardly ever ‘happy’ with the valuation price but because we can offer them high-quality clients quickly, which helps them get their project funded quicker, the value to developers outstrips the often-lower price and we can bring you the great projects that we do.

When buying new, the only true way to set a fair price, away from vested interests, is to enlist an independent top tier valuation firm to set the prices.

 

To view this fortnight’s VLOG on youtube click here.

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