What is Warren Buffett investing in now, and what does it mean for today’s real estate investors?
There are many misconceptions about Warren Buffett and what he invests in. Yet, everyone wants to invest like him. So what is he really investing in? Where does that signal opportunities and rewards for other investors ahead?
Affordable Housing
One of Buffett’s longest running investments is Clayton Homes, a mobile home firm. Clayton proved to be a great asset during the mayhem of the early 2000s, and affordable housing only appears to be even more important ahead. It may not be as exciting as luxury real estate, but it has clearly been a staple that could continue to play a notable role in many portfolios ahead.
Partnerships & Joint Ventures
One of the most significant pivots in strategy by Buffett and Berkshire Hathaway has been engaging in partnerships and joint ventures. If partnering up is for the world’s wealthiest individuals and organizations. then it is certainly for new real estate investors, and everyone else in between.
Grooming a Successor & Advising the Public
Over the last few years, we’ve heard a lot more debate and speculation about who will take over for Buffett. Through this time, Buffett has used the media and shareholder meetings to pass on a lot of advice. This has included warnings of the dangers of being too big and how it can actually negatively impact yields, the well-round and strong character values he expects in the next generation, and never wavering from the long-term investment strategy.
Real Estate Sales and Transaction Activity
One of the most notable moves in the last couple of years was the creation of Berkshire Hathaway Services, and the move into the real estate brokerage business. Much like Airbnb, Uber, and Zillow, this highlights a trend in service oriented companies that really own nothing, but make sizable revenues on transaction volume.
More Real Estate
In December 2015, it was revealed that Warren Buffett himself made a $100M investment to take an 8% stake in a real estate spin off by Sears. This deal, which gives Buffett a part of 235 properties, perhaps says a lot more about where he is confident seeing that he has pledged to giveaway his Berkshire stock when he leaves the game. So Buffett is massively bullish on direct investment in real estate. He also doesn’t believe that he has to have the largest controlling position, or manage it hands-on.
Commercial Real Estate & Buy and Hold Real Estate
The Sears deal reveals a new trend in commercial businesses spinning off their real estate holdings. They have certainly seen massive growth in the value of their real estate over the past few years. However, many may be forgetting that the same holds true going forward. It never pays to rent, even if that isn’t your main line of business. In fact, a good multi-tenant commercial property can pay for your own space as a real estate company, or even a solo investor, while bringing in other income and see company value grow when other channels and assets are not performing. We’ve also seen a big change in the forecast for retail real estate. Apple, and now Amazon, have opened brick and mortar retail locations. Technology is not replacing local, in-person shopping, but is augmenting it and strengthening it. Those that are quick to scoop undervalued deals, or even to secure mixed-use and residential deals close to shopping could see great results ahead. This is especially true as the economy picks up.
Summary
While Warren Buffett may often be referred to as a legend for investing in stocks, he is clearly more of a real estate investor than anything else. His advice? Focus on the long-term, and don’t neglect values and character. Having said that, what will you invest in?
