As CEO of Grenadier Homes and a professional in the DFW real estate industry for 30 years, many of my friends have asked me what to make of the market in the last 6 months and how to formulate the best plan for buying a new DFW home. I thought it may be helpful to use some guidance from the Wizard of Omaha, Warren Buffett, and his principles. This is the first in a series of blogs, so read on this year for more.
In these times of change, it is not uncommon for us to feel uneasy and like the deer in the headlights—freeze! The recent global health pandemic affected health, global supply chains, and in reaction, governments spent enormous sums of money and central banks immediately lowered interest rates.
The home took on a greater prominence in our lives during the pandemic while the office took on less prominence. This temporary change looks like a more permanent one as home prices rose worldwide with the increasing demand for homes. Technology allows us to work from home, which reinforces this permanence of the home being more important in society.
So, will DFW home prices rise, plateau, or fall? In uncertainty, it is easy to do nothing and stay put. One thing is certain, if history repeats over the next 10, 20, or more years, home prices will rise, so staying put is a decision that may in hindsight become a tragedy financially.
Well, what does Warren Buffett do in these uncertain times? He does a thorough investigation before making the decision. This is the first in a series of articles using Buffett’s principles.
ANALYSIS PRINCIPLES OF WARREN BUFFETT
- Look for margin of safety
- Focus on quality
- Learn the basics of value investing
- Understand the basics of compounding of value
The safety margin is basically do not buy things that are over-valued such as the most expensive home in the area or the most customized.
The quality encompasses lots of items, such as: the location should be one with good amenities nearby, the neighborhood should be one that is appealing today and will continue to get better, and the home itself should be architecturally appealing, and the construction and finishes should be long lasting.
The principle of value investing is that a home should both appreciate and be less expensive to maintain. We all know this with cars that have less repairs and good gas mileage. With homes, we sometimes overlook the fact that the most dramatic are also the most expensive to maintain with repairs and maintenance, with utilities and property taxes. While those large, dramatic homes may appreciate, this gain is eroded by the higher, monthly out-of-pockets.
The basics of compound value are those that over time a 5% compound return in 15 years will have doubled, but if you wait 5 years in making this decision when you’re younger, you will likely have to wait 20 more years to retire from your job if this gain is intended to fund your retirement.
This is how you get a good value investment buy: you make a list of these analysis principles, and you do not get distracted by emotional items like a model that has furnishings you cannot afford but imagine yourself in.
At Grenadier Homes, we build high-quality, best-in-class DFW townhomes with all these principles naturally built in. The prices are always below other new homes in the immediate area, acting as a safety margin. The homes are super-efficient in lot size and home efficiency, too, resulting in great value. The locations are always superb, and our neighborhoods are special in feel and look with lots of outdoor uses for real community gathering. The homes are dramatic, well-constructed, and architecturally significant, always including home office spaces. The homes are part of a cost-effective HOA, and because of the shared maintenance and the fair and strong HOA rules, they will better protect your investment. They are in terrific master-planned communities such as Meridian at Southgate in McKinney, Windsong Ranch in Prosper, Mira Lagos in Grand Prairie, and Woodbridge in Wylie.
The notion of townhome living is both a value investment and a lifestyle play. As lifestyle is becoming more prominent as Millennials are waiting longer to tie the knot and having fewer children, it is a smart play to own more of what others will want or need. Townhomes are a small percentage of all DFW homes built and a growing percentage of homes to be built due to costs of materials, labor, and land increases. This seems like a long-term hold, Warren Buffett type investment, doesn’t it?
*The example used is for illustrative purposes only. Actual investment and savings potential should be determined with a professional investment adviser.
