Modeling your investment strategy after that of Warren Buffett, Benjamin Graham and Irving Kahn is a smart choice. These investors and many more have investing principles based on value investing and if it has worked for them on such a large scale, then you have a great model to follow.
First, it is important to understand the difference between investing and speculating. An investment requires thorough analysis which promises security of the principle and an opportunity to make a decent return. The three keys to an investment are that you have completed an in-depth analysis, you are reasonably sure that you will not lose money and finally that you are reasonably sure you will make money. If you are simply relying on a strong real estate market in Phoenix to signal that buying investment properties is a good decision, then you are speculating on the increase of the overall market and not the particular properties that you have chosen to invest in. There is nothing wrong with speculating in an incredibly strong market but understand that it does pose more risk and possibly less reward than a well planned and executed investment.
Value investing does not have a standard formula to follow. It is more a theory with some principles that can be applied to an investment opportunity. Some investors choose to look at an investment that is significantly below value and they pay little or no attention to the quality of the investment. This is a good strategy to apply to real estate investments when you are first starting out. It is a good way to find affordable investment properties which allow you to build equity more rapidly. Other investors choose to look at both the value of the investment and the quality. More importance is placed on the quality as this is considered to be a more long term investment. This is a good practice after you have learned the real estate investment business and have more funding and the ability to wait out a longer investment to provide returns.
Margin of safety is a key factor in either scenario. This means being certain that you only invest if your research and calculations indicate that there is a significant profit to be made. This is basically a way to analyze if the risk that you are taking is going to provide a big enough reward. No estimation or analysis is ever 100% certain so having a larger potential return gives you a buffer in case your costs increase.
Learning from the experience of great investors is a smart move. They have built great empires using these practices and they are a good place for you to begin your real estate investing career. But the best advice you can get when entering this industry is to seek the guidance of an investment real estate professional. Visit www.azrealestatewholesale.com to learn about their services and all that they can offer you as you learn this business.