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Warren Buffett: Why Real Estate Is a Lousy Investment

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Warren Buffett likes to invest capital in things that generate consistent cash flow and add value. For Berkshire Hathaway and himself, whole-company ownership and affordable stakes in the best companies are his preferred investment vehicles.

Real estate, for the most part, can maintain its value during inflation as a hedge against currency devaluation and generate some cash flow, but it has no asset production value and therefore no ability to scale. Buffett prefers holding shares in companies that produce commodities like oil and gold during recessions as hedges rather than real estate.

He bought and owned farmland in his youth and brought in seasonal harvests. So while he likes the production value of his farmland, he doesn’t like his cash flow structure of collecting rent from his property. I also think he would have preferred more customer diversification in a business with the ability to grow and expand versus having a fixed number of tenants to rent or lease a property. increase.

“We both have quite a bit of experience in real estate, and Charlie made his early money in real estate. I think they tend to be priced very high, especially for more developed properties most of the time.” – Warren Buffett

“Well, during RTC, there was a huge amount of trading and there were owners who didn’t want to be owners in a big way and they didn’t know what they owned. I mean you were making a lot of pricing mistakes at the time, I know some people in this room made a lot of money off of it, but in most situations, the pricing mistakes It’s hard to find real estate.” – Warren Buffett

“So when you look at the deals that REITs are doing now, you get a lot of information about that sort of thing. They are very similar and a competitive world. I know it’s the office of A. As you know buildings are produced in Chicago or wherever they are, at least they may be all wrong because of some unusual occurrences But most of the time in the real estate world, it’s hard to argue with current conventional wisdom.- Warren Buffett

“Occasionally there may be big opportunities in this space because if they exist, there certainly are. We’ve done a lot of real estate financing, but we’re going to have to cut off a lot of money because of the potential for big mispricing across the board.” – Warren Buffett[1]

“Productive assets such as farms, real estate, and of course business ownership generate a lot of wealth. Most owners of such properties are rewarded. Just great diversification, minimizing transactions and fees.” – Warren Buffett

Image created by Holly Barnes

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