What does billionaire Warren Buffett have in common with Vanilla Ice, the 90s rapper made famous with his hit, "Ice, Ice Baby"?
You give up? Well, as a matter of fact they have a great deal in common. One, a child of the Great Depression who is now worth well over $66 billion, the other, a former rap star of the 1990's who is worth more than $18 million.
I'm the first to agree, at first glance, neither have anything in common. One's a businessman, the other an entertainer. However, they both share a common core investment strategy that's helped them make a fortune. They know that investing in real estate is one of the best ways to build long-term wealth, as do 90 percent of all millionaires.
As Scottish businessman, Andrew Carnegie once said, "More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate."
Buffett and Vanilla Ice are both aware that real estate is one of the assets that has historically outperformed all other assets, including stocks and bonds over time.
Vanilla Ice flipped his first property long before gaining fame as a rapper. He'd start with small properties needing renovation, which he did himself. One of his most profitable investments involved a house bought in Lake Worth, Texas for around $630,000 in 2013. It's now estimated to be worth more than $1 million.
Reportedly, he's even dabbled in commercial real estate, which has done well for him. And they both also understand that timing is essential, as I've often pointed out.
Vanilla Ice would buy distressed properties in foreclosure and tax auctions, for example. He was known to buy property in hard hit Florida housing markets, noting on CNBC, "A lot of the areas that got hit hard during the housing downturn are some of the first areas to come back out of it because they were desirable then and they're desirable now."
He was also well aware that the location and quality of a building is a bit more appealing when close to amenities and transportation, noting, "People are moving where they can be closer to airports, restaurants, and shopping."
We have to remember these factors will typically increase property desirability and appeal to investors. The more desirable the location and the amenities, the more attractive the property becomes. For example, in major cities, the farther the property is from mass transit, the less valuable it becomes. It may sound like common sense, but the property's distance from transportation, retailers, and amenities is a key factor in determining fair value and price.
Both entrepreneurs also understand that timing is more important than the price. This 'rule' was something Warren Buffett noted in his 2014 shareholder letter when he said, "The when is important."
Buffett bought undervalued property and waited for the returns.
Both are also well aware of the monetary rewards of real estate appreciation, cash flow potential, leverage and the benefits of depreciation. For years their strategy has been to buy undervalued properties with the intention of holding a property not fully recognized by the market.
While a 1990's rapper and a billionaire may not have much in common on the surface, these two bigger than life personalities share the same investment principals of other very wealthy investors.
The take away here is, you don't need to be a millionaire or billionaire to understand these basic investment principles to put them to good use in your own portfolio.