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Buffett: Buying Houses Better Than Buying Stocks

This article was written by in Real Estate and Home. 16 comments.


On CNBC a few weeks ago, Warren Buffett told the television-viewing audience, among other things, that he would purchase a couple hundred thousand single-family homes right now, if it were practical to do so.

That seems like a ringing endorsement of buying residential real estate for its value as an investment. If the buyer also benefits from having shelter, it could only make the investment better. With low interest rates — and the average rates have decreased since Buffett made this statement — and a long holding period, Buffett believes real estate presents a better opportunity for growth than stocks.

Before Buffett made this declaration on television, I pondered if the timing might be right for buying a house. I was considering this not only as a general opinion but as a plan for myself. I’ve rented my living spaces for as long as I’ve been adult, and I’ve been an adult for half of my life at this point. Some people see purchasing a house as a rite of passage or a sign of maturity, but I haven’t fallen into that societal trap.

Purchasing a house is a decision made with both financial and non-financial considerations. There are many reasons or situations in which it’s not financially smart to purchase a house. If you don’t expect to stay in the same area for a long period of time, you could find yourself needing to sell your house at a loss or reluctantly becoming a landlord with varying levels of success. From a financial perspective, most people who claim to sell their homes for a profit forget all the costs that go into buying, maintaining, and selling their home beyond the purchase price and sale price.

If you ask the National Association of Realtors, it’s always a good time to buy. It’s also always a good time to sell. The industry doesn’t care, as long as you’re buying or selling rather than not doing anything; that’s how they get paid. When Warren Buffett is the individual offering advice, that’s a good time to start listening.

CNBC

Published or updated April 12, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar Nick

I’m a big fan of real estate – here in NYC residential rents are the highest they’ve ever been (average of $3,400 per month) according to the paper. Soon enough the pendulum is going to shift back to people buying. We may not be “at” the bottom, but it does seem like we’re in a decent buying environment, with depressed/stalled prices, expensive rents and low interest rates, doesn’t it?

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avatar PK

I think it’s got to be getting at least close to a wash for you versus renting by now. Definitely don’t enter into the home buying fray as “a rite of passage or a sign of maturity” – that’s a joke. Enter into it for financial and lifestyle reasons!

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avatar Cherleen @ My Personal Finance Journey

I have always believed that real estate is a good investment. Homeowners are hitting two birds with one stone – an investment and a shelter. I am looking forward that this industry will regain its glory.

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avatar Rob Bennett

Over the long term, I would rate stocks as a far better investment choice.

But I agree with Buffett that at the current moment buying a house is a better bet.

Anyone who shows an interest in buying a house is 100 percent in the driver’s seat today. That’s not so (yet!) with stocks.

Rob

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avatar Ceecee ♦796 (Dime)

I have a friend who owns a couple of houses. They’ve been nothing but a headache. They’ve had renters who did not pay, huge bills to spruce up in between renters, and now they can’t sell one of the properties. It opened my eyes to the fact that real estate is not as easy as everyone thinks.

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avatar Chip

Give yourself options. I bought my home in Los Angeles, where I live in the main house and rent out the guest house. That rental income almost completely covers my 30 year fixed mortgage. If things went belly-up, I could move into the guest house and rent the main house.

Consider a duplex or four-plex in your area, or a house with a room you could rent out. When I was growing up, a neighbor added an “in-law” apartment to his house so his aging mother could live there independently. Buy one of those and rent out the in-law apartment to help pay your costs.

- Chip

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avatar jim

I do personally think its a good time to buy real estate in general. The market just cratered and after a major dip in prices its usually a good buying opportunity. However real estate markets are very local and it really depends on where you live. Plus what makes sense for Buffett as an investment may not necessarily be a ringing endorsement for individuals. If Buffet were to buy 100k homes he might do so in select markets, leverage the purchase and hire management firms and then seek a conservative but dependable profit return. Thats an investment. That doesn’t however make it a good idea for everyone to buy a house in any city. Still I do think real estate is valued well in general right now.

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avatar PunctuationMark

During most historical recessions/depressions, people who have liquid assets to invest stand to make plenty of money — they’re able to soak up the assets now, and then things rebound, they reap the rewards.

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avatar Holly

That seems to be the general consensus…but if you had $35000 sitting in a boring high-yield savings account and wanted to put it into money-making mode, which would be more prudent in this current volatile market? Invest in tangible real estate or beef up your stock positions?

It’s a very difficult question for me…I think it might be wise to combine the two w/REITS? Any opinions>?

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avatar Evan

I must have heard the same interview, and I am not sure why it was passed over so simply. Can’t he just purchase a REIT? or Create his own REIT which would allow BRK to basically own thousands of homes?

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avatar Evan

I must have saw that same interview, and I didn’t really understand why the next logical follow up question wasn’t asked.

Why not start a REIT that employs people that believe the same way as he does and own your thousands of homes?

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avatar Steve Dupree

a) He’d have to find a bunch of people that believe and think like he does. (If he could do that he’d be a billionaire. Oh, wait)
b) Would it be possible to buy hundreds of thousands of houses without distorting the market to the point where it’s no longer profitable to buy houses?
c) It can be extremely hard to buy a house nowadays. Inventory is very low. e.g. http://seattlebubble.com/blog/2012/05/02/reader-question-did-i-just-step-into-a-shark-tank/

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avatar shellye ♦107 (Cent)

I love real estate, and wish I had more rental houses. Right now I only have one, in addition to my residence, and it’s rented out. I have several friends and in-laws who have rental properties that is basically funding their retirement.

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avatar Mike Collins

I’m in the process of selling my house and buying a new one. I wish Buffett would have made an offer on mine and driven up the price a bit!

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avatar Financial Advice for Young Professionals

Real estate investment isn’t right for everyone, but it is the only investment where you can put up 20-35% of the sales price and get a return on 100% of the money! That’s why I love it :)

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avatar David Hood

Does anybody have the direct quote?

I wonder if Warren will put his money where his mouth is or if he’s just saying that this is what he thinks is best for regular, non-billionaire, people.

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