Real Estate Investment Advice From Warren Buffett

by admin on March 10, 2014

In this article, the one and only Warren Buffett shares a few attainable real estate tips to investors.

Real Estate Investment #1 – Farmland

Mr. Buffett purchased 400 acres of Nebraska farmland in 1986 from the FDIC at a fraction of the property’s prior loan balance. Investment results: 28 years later, the farm’s earnings have tripled and the property is worth 5 times more than what Mr. Buffett paid. Smoothing out the cash flow growth over the hold period, this would equate to an estimated 15% unleveraged return.

Real Estate Investment #2 – Retail Building

The second real estate investment discussed is a New York City retail property that Mr. Buffett purchased with legendary NYC real estate investors Larry Silverstein and Fred Rose. The partnership acquired the property in 1993 from the Resolution Trust Corporation, the entity that was created to liquidate bank owned real estate and distressed loans stemming from the savings and loan crisis. Under the RTC’s supervision, the retail building was floundering as the largest tenant’s rent was substantially below market, which was a temporary constraint on earnings. Investment Results: annual distributions now exceed 35% of the partnership’s initial equity investment and the property was refinanced twice, enabling the partners to take special distributions totaling more than 150% of their initial investment. It’s always more fun when you’re playing with the house’s money.

Here are some quotes from the shareholder letter regarding these investments followed by my own takeaways:

“You don’t need to be an expert in order to achieve satisfactory investment returns”

“Focus on the future productivity of the asset you are considering”… “If you instead focus on the prospective price change of a contemplated purchase, you are speculating.”

“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there — do something.”


By: Brad Johnson

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