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WHY WARREN BUFFETT DOESN’T INVEST IN REAL ESTATE:
1. It’s more difficult to make money with Real Estate than in the Stock Market.
Median home prices have increased an average of 4.3%, during a century when inflation averaged 3%. This means, if you just bought a random house – and did nothing but hold on to it – you would be earning just 1.3%, per year, above inflation. This does not include rental income, which could boost returns by an additional 2-6%+ per year. On top of that, you could also leverage your money – but this heavily depends on interest rates.
However, most people never take into account the time it takes to search for – and negotiate – the right home, the cost of inspections and closing costs, the effort of management, the coordination of ongoing repairs, etc. The Stock Market has increased an average of 9.8%, with dividends reinvested – with just the click of a button.
2. When Real Estate Drops, Stocks Fall Even More.
With the exception of 2 major real estate drops in 1929 and 2008 – for the most part, home prices have been fairly resilient, with very few ‘groundbreaking’ buying opportunities. This suggests that stocks have a lot more volatility, and it’s unlikely you’ll find a no-brainer buying opportunity throughout the entire housing sector.
3. When buying real estate, you’re dealing with a single seller – and everything becomes negotiable.
The fact is: Real estate is not as liquid as stocks are; if you want to buy, or sell, it takes a SIGNIFICANT amount of time and effort. It’s a long, drawn-out, time-consuming endeavor, that doesn’t really become scalable – unless you’re dealing with apartment buildings or an entire portfolio.
On the other hand, if I want to sell stocks – it’s done in less than a minute, from anywhere in the world. You don’t have to wait for a buyer, you don’t have to negotiate, you don’t have to wonder if the deal is going to close; if the price is right, it’s just instantly finished.
The Reality:
99.99% of people can’t successfully get the returns that Warren Buffett does. For everyday investors, it’s possible to make a significant amount of money in real estate, IF they know what they’re doing, IF they’re buying for an investment, and IF they’re prepared to put in the time and effort to run it successfully. Yes, it’s significantly more work than stocks – but, your returns can also be higher under the right circumstances.
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