Warren Buffet had a great piece in Fortune Magazine recently (http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/) that had some great investing tips that definitely apply to real estate investing.
He describes investing as "forgoing consumption now in order to have the ability to consume more at a later date." What a succinct way to describe investing. If you plan right a little sacrifice now will enable you to have more to enjoy later.
One of the risks he identifies that we need to be aware of is inflation risk. This is a shocking statistic that he shares: "The dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 to buy what $1 did at that time." You have to make sure that your investments are beating inflation or else you are falling behind.
I love how he describes how investment bubbles are created: "As 'bandwagon' investors join any party, they create their own truth -- for a while."
"Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the 'proof' delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: 'What the wise man does in the beginning, the fool does in the end.'"
That is sound advice. If we stick to the value investing principles that Buffet espouses in our real estate purchases we will remain the wise men and women and not the fools.
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