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5 Lessons Warren Buffett Can Teach Real Estate Investors

When you think of Warren Buffett, what do you think?

You probably think of how the “Oracle of Omaha” has built a very successful empire on stock investing. So you might be wondering why I’m talking about a stock investor at American Wealth Builders. After all, don’t we usually tell people to get out of stocks and get into real estate?

It’s true, we do. We believe turnkey real estate investments are the best investment choice for most Americans. After all, research has shown that the average stock investor has a 10 year annualized return of just 2.6%.

Besides, even though Warren Buffett invests in stocks, the field-tested principles and strategies he uses, that have made him a fortune in stocks, can still apply to some real estate investments as well.

So here are 5 lessons that we can learn from The Oracle himself.

Lesson #1. Real Estate Is Where It’s At

Most people think of Buffett’s fortune as being a stock market fortune. But Buffett loves real estate as an investment. In 2012, Buffett told CNBC, “I’d buy up a couple hundred single family homes if I could.”

Along with his preference for properties, he also holds other real estate holdings that you might not immediately think of: specifically, he has owned a couple of mortgage companies, and he has shown a voracious appetite for real estate brokerages for the past 15 years.

You might not be in the market to buy a mortgage company or a chain of real estate brokerages but if Buffett loves real estate, maybe you should, too.

Lesson #2. Don’t Lose Money

One of Buffett’s more humorous maxims is as follows: “Rule Number 1 is never lose money. Rule Number 2 is never forget Rule Number 1.” And while most people can’t quite achieve this in the stock market, they discover that it’s MUCH easier to achieve in real estate because real estate holds its value much more.

Even if the property is temporarily empty (such as if one tenant has moved out and the property management company is putting another tenant in), it still has an intrinsic value because it’s a piece of developed land.

Lesson #3. Buy Businesses

If you think of Buffett as a “stock market investor” – as I’ve been suggesting in this email – you’d actually be wrong. Yes, he conducts the transaction in stock – but Buffett buys businesses.

That’s a big difference. Most people who buy stock are speculators who take a risk. Buffett buys because he and his team have done considerable research into the business itself.

That’s why turnkey real estate is such a powerful investment – because it’s so closely aligned to this type of thinking: specifically, when you acquire a turnkey real estate investment, you’re really acquiring what you might think of as a business… it’s an asset that has value and there’s cash flow and management… many of the qualities you’d have if you owned some other business.

Lesson #4. Buy Something You Understand

A fundamental tenet of Buffett’s success is to “never invest in a business you don’t understand.” This is why Buffett is often seen investing in blue chip companies… and not the latest, hottest biotech penny stock start-up.

What’s true for Buffett should be true for other investors as well, yet many stock investors get caught up in the latest craze and stock market gossip.

Investors who agree with Buffett will see that real estate is a great tool because it’s simple to understand. You’re probably grew up in a house, you’ve seen houses all your life, you’re probably a homeowner yourself, and you probably know many people who own real estate.

Even if you’ve never invested in a turnkey real estate investment before, it’s easy to “get”. And that is the heart of Buffett’s message.

Lesson #5. It’s All About The Income

Many stock investors tend to be speculators – that means they buy low and hold, waiting for the price to rise. Speculators don’t get a lot of regular income paid in dividends; they are often looking for a big “pop” of capital gains instead.

However, there are stocks that pay a dividend income and in 2015 one research company analyzed Buffett’s Berkshire Hathaway holdings and discovered that his dividends earn $1.95 billion a year.

So even though Buffett is often thought of as a buy-and-hold investor, he’s making nearly $2 billion a year in income, so that’s nothing to turn your nose up at!

As a turnkey real estate investor, you structure your holdings in a similar way – a buy-and-hold investment with a regular payment (of rental income, not dividend income).

Warren Buffett has earned the nickname, “The Oracle of Omaha.” And although most people recognize his genius in the world of stock market investing, you can see how his same strategies apply to turnkey real estate investing as well.

If you’re not quite raking in the billions that Buffett is, and if you’d like to build up your holdings and build your own net worth using Buffett’s principles (but applied to real estate) then give our team a call (561.408.0880). One of our Senior Wealth Strategists can help you see how a turnkey real estate investment can fit into your investment strategy.

About American Wealth Builders

American Wealth Builders helps first-time and seasoned investors to build and diversify their investment portfolios by delivering industry-leading step-by-step service so clients simply pick up a phone for authoritative guidance on taking the next step.