Warren Buffett and Real Estate: His Investments, Companies and Insight
Warren Buffett is the second richest person in the world according to a special report by Forbes.com. He’s net worth is $52 Billion, despite a gift of $31 Billion earmarked for various charities. He is the CEO of Berkshire Hathaway Inc., a holding company for many successful businesses in insurance, apparel, utilities, home furnishings, beverage, jewellery, real estate and more.
At the age of 14, his first business was installing pinball machines in barber shops. He spent $1,200 of his profit from the business to buy 40 acres of farmland. He rented it out to tenant farmers. This was one of his first passive income streams.
In 1958, Warren Buffett bought a $31,500 house in Omaha, Nebraska for his growing family. He still lives in the same house. The current estimated value of his house is around $700,000. He also owned a more expensive home in Laguna Beach, California which he sold in 2004 for $3.5 Million.
As a business, two of Warren Buffett’s real estate subsidiary and affiliate companies are:
It is the nation’s second largest full service residential real estate brokerage firm and the largest settlement services provider in the country. It offers a one-stop shop of real estate services which includes brokerage, mortgage, title and closing services and other home related services. Here is an article in Business Week which described Home Services of America as Buffett’s Invisible Empire.
It is the #1 maker by units of manufactured homes in the US. It distributes its products in 49 states through a network of about 1,650 retailers. It does not only build homes but it also sells, finances and insures manufactured homes. It also owns and operates around 70 manufactured housing communities.
Warren Buffet’s business model is to allocate capital to businesses with sound economics. He also maintains the existing management to operate the company. He is aggressive in buying solid businesses at reasonable prices during market corrections and downturns. Meanwhile, during a strong or highly speculative market, he is conservative.
Here are excerpts of Warren Buffett’s comments on the real estate bubble:
"If indeed there’s been a bubble, and it’s pricked at some point, the net effect on Berkshire might well be positive because the company’s financial strength would allow it to buy real estate related businesses at bargain prices."
"Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we’re seeing that in commodities and housing…Orgies tend to be wildest toward the end. It’s like being Cinderella at the ball. You know that at midnite everything’s going to turn back to pumpkins and mice. But you look around and say, "one more dance" and so does everyone else. The party does get to be more fun–and besides, there are no clocks on the wall. And then suddenly the clock strikes 12 and everything turns back to pumpkins and mice."
You can read more about his real estate insights in the following articles in CNN.com; The Oracle Speaks and Buffett: Real Estate Slow Down Ahead
I totally agree with his comments. A lot of people tend to join the band wagon even if it is going the wrong direction. Those who took the road less traveled; buying when everyone else is holding on to their capital,ended up as winners.
We are always looking for ways to make money in real estate or in any other business. But sometimes, we tend to overlook the most obvious means. Making money in real estate can be as simple as buying low and selling high. Yet, with all the frenzy in the market, people can get emotional about their buying decisions. When the prices were going up, speculators who did not want to miss out on the increasing prices of real estate bought to their heart’s content. Some over maximized their buying capacities. When this irregular demand that pushed the property prices corrected, a lot were faced with negative equity and some are even dealing with foreclosures.
Warren Buffett’s real estate businesses may not be as popular as his other businesses, but he truly knows how to run it, to maximize the return on his investments. His business principles are simple yet very effective.
He is not only the second richest man in the world, but his smart and straight forward approach in doing business earned him the position in Time Magazine’s 100 Most Influential People in the World (2007).
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POSTED IN: Insights and Commentaries, People Who Made it Big in Real Estate
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