286- Real Estate Investing

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Business, Investing

4.6 • 1.6K Ratings

🗓️ 6 October 2020

⏱️ 55 minutes

🔗️ Recording | iTunes | RSS

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Summary

If you think that because real estate lets you leverage your investment, the rate of return is much higher than a business/stock investment, and is, therefore a better place for beginner investors to put their money, think again. This is a commonly held idea that is completely mistaken. Phil and other expert investors including Warren Buffett have owned real estate, everything from subdivisions to large farms, apartments, commercial property, and single-family homes. If you were to do a real estate versus business/stock ownership returns comparison, we could pit the hottest real estate markets against the hottest Rule #1 investors. But it seems better to use the average real estate market and the average Rule #1 investor. As Rule #1 investors, we incur almost no management responsibility—a significant advantage. We have to spend about 15 minutes a week reading and researching, and that’s it. We’re required to know the basics of Rule #1 investing, but it’s easier to learn than real estate investing once you know the advantages. Let’s say a Rule #1 investor had $50,000 to invest. They could buy a wonderful business at an attractive price, and when it gets unattractive, sell and buy another. We do that for 30 years, averaging 15%. After 30 years, the investment would be worth $3.3 million. Now compare that to a real estate investment. Say the average person buys a $250,000 house for $50,000 down with a 6%, 30-year fixed mortgage. Their payments are $1,200 a month, but they rent it for $1,200 and cover the mortgage payments. They’re in the hole for insurance, maintenance, advertising, and taxes. Their only choice would be to re-leverage their investment and buy more real estate—which is a whole lot different than being retired, isn’t it? Now that you're starting to think about what assets you want to invest in, make sure you understand the distinguishing characteristics to look for when buying a piece of a company. Does the business have honest management, a large moat, margin of safety, and meaning to you? Research those companies more deeply to determine which abide by Rule #1 principles. If their numbers look good, these are companies you want to add to your watchlist. Today, Danielle and Phil discuss whether or not it’s possible to make real estate a beneficial component of a high-performing financial portfolio. Learn more about buying stocks within your circle of competence with this 3 Circles Exercise Guide! Click here to download: https://bit.ly/2F9rn9C Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Hey everybody this is Phil Town and welcome to the invested podcast where
0:04.9	Danielle and I my dear daughter try to figure out how to best teach you guys how to invest like Warren Buffett, Charlie Munger, Guy Spear, Manish Pribri, and many other phenomenal investors that we, some people call these guys all value investors would call them rulers because they all
0:26.2	try to follow the famous rule number one which is don't lose money followed by rule number two which is don't forget rule number one, which is don't lose money, followed by rule number two, which is don't
0:34.2	forget rule number one. In other words, this investment strategy that these
0:38.8	investors follow is about focusing on the opposite thing that your financial advisors focus on, that your fund
0:46.3	managers focus on, and that you focus on. Virtually all other investors focus on trying to make
0:52.3	money when they're investing and what
0:55.1	could be more obvious you're investing to make money except that's exactly not
0:59.6	what the best investors in the world do. They follow this rule. Don't lose money.
1:06.5	Manesh per briney puts it like this. We're looking for a free lottery ticket.
1:12.0	It's simple. We're looking for a free lottery ticket. That's it. Simple. We're looking for a free lottery ticket.
1:16.6	Alan Meacham, who's one of the greatest investors ever runs Arlington Value.
1:20.5	He says what we worry about is the downside.
1:26.6	We don't want to lose a permanent amount of capital.
1:30.8	So this is something very different
1:32.3	and this is why it takes some study and
1:34.0	take some understanding for how this kind of strategy plays itself out in the
1:40.1	tactics of investing. And that's what we've been working on on the podcast. And today,
1:44.0	unfortunately, Danielle, he's not here. She's still got this COVID thing kicking on her. She's doing really well,
1:51.4	but she's still very, very tired tired so we're going to replay one of my
1:55.2	favorite podcasts which is discussing one of the most one of the coolest ways to
2:02.2	put a price on a company that you want to buy
	...

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