I am going to discuss an interesting way to look at real estate investing that may be a bit unconventional to most property investors.
A while ago, I watched a video by Charlie Munger, who is well-known as the business partner of Warren Buffet and his famous quote “Tell me where I’m gonna die and I’ll make sure I don’t go there.”
In this video, Charlie who was 83 at the time, shared his life time of wisdom to make him a billionaire with a group of university graduates who are about to start their career.
There is one particular statement Lentor Modern Price that really interests me; he said “You are not entitled to an opinion unless you can state the arguments against your opinion better than your opponents can.”
I find this statement quite profound but very difficult to apply in real life, I thought I would put it through some of the opinions widely circulated within real estate investment and see how it goes.
Before I am entitled to an opinion of “how useful Charlie’s statement is”, the counter argument of “how useless it is” can be something like the following:
- We are all entitled to our own opinion about anything, regardless of whether it is right or wrong, it doesn’t really matter what other people say.
- Sometimes an opinion can be completely wrong, but still workable in life. “The earth is flat and still” is a good example of this, completely wrong, but workable! Wouldn’t it be more workable to think that you are walking on a still and flat surface than a rotating ball?
So for the rest of the article, allow me to focus on how useful I think Charlie’s statement can help us as real estate investors.
What I have done is, go back to look at some of the tenets of real estate investment that we have taken for granted without examining the opposite arguments, then see if we can learn something from it, and more importantly see if we can discover investment opportunities most people miss because they fail to see the other side of the story.
I found the most common opinion about real estate investing is: Land goes up in value because of its limited supply so buy properties where land is of limited supply!
If you look at the property performance in Australia since 1996, good quality established suburbs all share this land scarcity factor, they all perform very well according to this tenet. For example, while building cost is increasing 3-4% a year tracking CPI, the land value has increased as much as 12-14% a year, which averages out a 10% growth for a property over the last 15 years.
It is very easy to not question the opposite side of this opinion when the facts are overwhelmingly supporting this argument.