Charlie Munger & Real Estate
Interested in learning more about Charlie Munger's relationship with Real estate investing,
Appreciate any info you can share or books, articles etc that cover this topic!
Many thanks
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Read Poor Charlie’s Almanack if you haven’t already. It’s a great insight into his thought process.
I haven’t heard him speak on RE directly, but I’d imagine the product type falls squarely into something he would be willing to buy if it fulfilled his fundamental models of thinking, which I think it would.
Real estate is relatively easy to understand from a technical reason, and it’s easier to understand demand drivers and the integration of value from say, cyber security SAAS platforms utilizing AI.
Like stocks, RE is a heavily “fee’d” business, managers all taking a piece of the returns. From this model view, I like to imagine Charlie as a developer who takes a big bet on one particular metro for XYZ reasons, buying both land and buildings that as they’re improved, augment the value of the land. I think he’d hold it over the long term for cash flow.
Perhaps it would be easier for him to just acquire a REIT🤷♂️
Can't speak to his books but did compete against his company on a number of opportunities as well as had them look at our properties as a buyer. From my experience, they specifically focused on low density quasi-infill locations. Infill as in Inland Empire and Ventura, not urban core, but land constrained suburban areas. Land was a very important component of his real estate investment strategy which is similar value focused stock strategy.
Do you happen to know when/what properties they acquired in those areas?
I forget the name of the property in Ventura but Afton owns The Dylan in Oceanside CA and The Hills of Corona in Corona CA.
Unsurprising, his windowless dorm was a nod to Le Corb.
I saw StripMallGuys's post about his conversation with Charlie, where Munger emphasized how important it is to 'buy and hold'. Curious what you guys think about this? Isn't most value created initially, what exactly is the benefit of buy and hold?
Very few can accurately time the market consistently, I view buying and accruing assets similar to dollar cost averaging a portfolio. Not sure who said this first, but I abide by the idea of betting on a horse race, not an individual horse.
Why don't you explain what lies behind the assumption that "most value is created initially"? Because that sounds a lot like someone trying to defraud their investors by churning through deals and feeing the hell out of their LPs
I'm just a student/intern, by no means an expert. But I was going on the assumption that if someone believes they have an 'edge' in that they can source/negotiate good deals, or create value through 'value-add' strategies such as renovations, better leasing etc. Then most of the value is created in the first year, and by selling the property then, they are able to unlock the capital to repeat this for maximal efficiency.
I think what Munger is trying to say is that you should acquire real estate where there are high-enough CoC returns where your investment strategy is not predicated on flipping it at a pre-determined time. "Buy and hold" in the context of an operating business is that it is a sufficiently cash-generative and growing business that the opportunity cost of selling it is too great. I guess the same applies to real estate: acquire a great located asset, enjoy high-and-growing cash-on-cash returns, don't bother selling the asset but go through a series of refinancings, thereby you can re-invest the money in other cash-generating businesses.
Interesting, I can understand why a business may have the opportunity to increase its earnings/free cashflow strongly for a sustained period, but why should a real estate asset be the same? Surely rents grow at a much slower rate, driven by demographics etc.
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