Know the limits of your understanding
His 1996 letter describes staying within your “circle of competence”. For a property buyer: can you assess the demand, expenses and risks, and where do you need specialist help?
Investment · A personal perspective
Understand
before you invest.
Questions and principles I’ve found useful when thinking about investment.
You do not need to know everything to begin. Start with your goals, understand what you are buying, and ask enough questions to make an informed decision.
Start with purpose
What is the money
meant to do?
In property, a conversation often starts with an address or a price. I think it is useful to take one step back: what do you want this investment to do for you?
You may want income today, growth over time, or a combination of both. Your timeframe, commitments and ability to absorb a loss matter just as much as the opportunity itself.
A loan pre-approval is a useful step. It does not establish whether a particular investment suits your goals or what it will cost you to hold.
01 / The principles
Eight questions
worth asking.
A useful discipline across different investments. No checklist can remove the possibility of loss.
What am I trying to achieve?
Define the outcome and the date it matters. Regular income, a future purchase and retirement may call for different approaches. Write your purpose down before comparing opportunities.
Do I understand how it works?
Explain in plain English what you own, where any income comes from, and what could reduce its value. If the explanation depends on jargon or someone else’s confidence, keep asking questions.
What evidence supports the price?
Separate the asking price from your assessment of value. Compare relevant transactions, sustainable earnings and realistic costs. A good asset can still be a poor purchase at the wrong price.
What remains after the costs?
Look beyond the advertised return. Fees, financing, maintenance, tax and the cost of buying and selling can change the result. Compare figures on the same basis: gross or net, before or after tax.
Can I withstand a difficult period?
Test lower income, higher costs and a fall in value. Borrowing magnifies gains and losses, and repayments continue when income stops. Allow room for error and keep access to a cash reserve.
How concentrated is my exposure?
Consider your existing home, business, super and other investments together. Several holdings in the same location or industry may share the same risks. Diversification can reduce concentration risk; it cannot prevent every loss.
How will I get my money back?
Check the likely selling time, exit costs and any withdrawal restrictions. A long-term asset may be unsuitable for money needed soon. Do not assume a buyer or refinancing will be available when you need it.
Have I checked the story independently?
Verify documents, assumptions and the people involved. Ask who receives a fee and whose interests they represent. Be wary of urgency, guaranteed high returns or pressure to skip independent advice.
Learning from Warren Buffett
Understand the asset.
Think like an owner.
Buffett’s shareholder letters offer a useful way to think about investing. These are summaries of his ideas; the property questions are applications of those ideas.
References to Buffett do not imply his endorsement of Scott Banks or any property, business or investment.
Look at what an asset can produce
In 2013, he used a farm and a retail property to explain his focus on productive earning capacity. For property: what supports the rent, and what remains after realistic expenses?
Keep price and value separate
His 1996 letter warns that even an excellent business can be bought too dearly. For property: does the price make sense under reasonable assumptions, with room for things to go wrong?
1996 shareholder letter ↗2013 shareholder letter · pp. 17–19 ↗
02 / Investment types
Different assets.
Different trade-offs.
No single investment does every job. This is an overview of how common types work, not a ranking or a suggested allocation.
| Investment | Where returns may come from | What to understand |
|---|---|---|
| Cash & term deposits | Interest on deposited money. | Inflation can erode buying power. Rates change; term deposits can restrict access or impose early withdrawal conditions. |
| Bonds & fixed interest | Interest and repayment of principal, subject to the issuer’s ability to pay. | Issuer default, interest-rate changes and selling before maturity. Bond funds can fall in value and differ from holding an individual bond to maturity. |
| Shares & share funds | Dividends and changes in the value of businesses. | Prices and dividends can fall. Funds differ in holdings, fees and diversification. An ETF is a structure, not a guarantee of broad diversification or low risk. |
| Residential property | Rent and possible growth in the property’s value. | Vacancies, expenses, condition, borrowing and local demand. Buying and selling costs are substantial, and selling takes time. |
| Commercial property | Lease income and possible growth in value. | Tenant strength, lease expiry, incentives and reletting costs. A long lease does not remove default risk; vacancy can be prolonged. |
| Businesses & private investments | Operating profits, distributions or eventual sale proceeds. | Management, financial records, debt, investor rights and dependence on key people. Information and exit options can be limited; capital may be lost. |
Superannuation is a structure through which investments can be held, rather than a single asset class. Its investment options, fees, tax treatment and access rules need separate consideration.
Further reading: ASIC Moneysmart — Choose your investments ↗
03 / Property numbers
Yield is only
the beginning.
Gross yield describes rent relative to price. It does not tell you the cash left in your account.
Illustrative example · AUD
- Purchase price
- $600,000
- Rent at $600 a week × 52 weeks
- $31,200 p.a.
- Gross rental yield
- 5.2%
- Assumed vacancy & operating costs
- − $8,000 p.a.
- Net income before finance & tax
- $23,200 p.a.
- Interest: $480,000 loan at 6%
- − $28,800 p.a.
- Annual cash flow before tax
and principal repayments - − $5,600
Net rental yield on the purchase price is approximately 3.9% before finance and tax. Including buying costs in the denominator would reduce that figure.
Invented figures for learning only, not a property appraisal, current lending rate or recommended borrowing level. The $8,000 allowance is an assumption, not a cost benchmark. Buying and selling costs, major capital works, loan fees, principal repayments, tax and changes in value are excluded. No capital growth is assumed.
Build the complete picture
For a real property, obtain the rates, owners corporation records, insurance, management charges, maintenance history and applicable land tax. Check the tenancy and evidence behind any rental estimate. Allow for purchase costs, compliance work, vacancy and future capital expenditure.
Then model a difficult year. In this example, a two percentage point increase in the interest rate would add $9,600 a year to interest costs on the same loan balance. What would your cash position look like if a vacancy or major repair happened too?
04 / Prepare your questions
Start with a brief.
Keep asking questions.
A written brief can help you clarify your thinking before speaking with an agent or an independent adviser. It is fine if some answers are still taking shape.
- Your purpose. Income, long-term growth, or both? What would a useful outcome look like?
- Your working budget. Your comfortable purchase range, allowance for buying costs and the reserve you intend to keep.
- Your finance position. Cash, early discussions or pre-approval? Confirm property-specific conditions with your lender or broker.
- Your timeframe. When would you like to buy, and how long could you hold the investment?
- Your capacity for a shortfall. What ongoing contribution could you comfortably afford if income did not cover costs?
- Your criteria and open questions. Property type, location, level of involvement and the information you need to decide.
Use these notes as a starting point for your own research and independent advice. A general enquiry should not need bank statements or other sensitive financial documents.
Ask who an agent or adviser represents and how they are paid. Where I or an associated business acts for a seller or receives a fee, clarify that role and remuneration. Obtain your own financial, lending, tax and legal advice before committing.
For business-specific property enquiries, visit Scott Banks Global.
Explore my businessesKeep learning
Useful reading.
- ASIC Moneysmart — Develop an investing plan ↗
- ASIC Moneysmart — Diversification ↗
- ASIC Moneysmart — Borrowing to invest ↗
Prepared September 2026. Rules, costs and personal circumstances change. Check current information and seek advice appropriate to your situation.