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Lessons from Warren Buffett... Applied to Real Estate

The stock market has been a bit crazy lately, with some pretty steep daily losses that have followed some huge gains over the year prior. The latest hot topic weighing on investors' minds, or so the headlines read, was the steel tariffs and the fear of a trade war that followed.

I like to pay attention to what's going on in the financial markets in general, since there's info/data that can be leading indicators of what to expect in real estate, but I'm not the type to obsessively check my portfolio or care what the stock market does on any given day... I tend to only check on the first of the month when I update our assets and liabilities on the 'net worth' spreadsheet I maintain.

Anyways, on this particular day last week, I was reading an article titled "Here’s what Warren Buffett says to do when the market tanks." Here's a pretty good nutshell takeaway from the article:

"Don't watch the market closely," [Buffett] advised those worried about their retirement savings at the time. "If they're trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they're not going to have very good results."

I eat, sleep, and breath Greater Seattle real estate, so this immediately had me thinking about lessons I've learned in real estate and how I share a similar approach. The first bit of it is that real life living needs don't tend to wait for the most opportune times to buy and sell... life happens. Families grow, split, move, etc.

Applying Warren Buffett lessons to Real Estate

The second bit, and the part I'll focus on here, goes back to lessons learned during the real estate bubble, when I first started learning real estate in 2005.

People were buying homes with the mindset that prices would just keep going up, and if they needed to sell in a year or two, then they could just sell it for a profit. More to the point, during the real estate bubble, people were buying homes that had no back-up plan if their situation, or the market, changed.

What if someone bought a house and had to move across the country for a job a year or two later? As we learned, this was a disaster for many, since there was no back-up plan for "what if I can't sell for a profit when life changes?" As in, the mortgage payments associated with these zero down purchases, with 6-7% interest rates and higher on 2nd mortgages, resulted in monthly payments that were way more than what a home could rent for. Meaning, people faced with selling for a loss had the alternative of bleeding cash every month for an asset that was worth less than they owed.

Enter short sales and foreclosures. Here's the long story I'm working on summed up in a recent interaction with a new client...

While sitting down for a coffee meeting to learn about this client's particular goals, one of the first questions I asked was "how long do you think you'll live in Seattle" as a means for figuring out the likelihood of a move.

Whether or not a client answers with a shorter term time-frame, like 2-5 years, the question serves as a lead in for my word of caution and wisdom... always consider what your mortgage payment will be relative to the going rent for a particular property of interest. You never know what life will throw you, and though the arrow is pointing up on real estate, we simply don't have a crystal ball. So, know your back-up plan - renting out the asset instead of selling it - so you can capitalize on the long term gains of real estate and smooth out the peaks and valleys

And a brief side note of consideration... the amount of funds you tie up in the purchase play into the back-up plan considerations, since your down payment, once handed over to the bank, is not the most liquid asset...

Have you been considering a move in and around the Greater Seattle area and want to talk through these concepts and any other real estate questions you have? I'll do my best to be a great resource for you... just contact me and I'll follow up with you!

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