So, when he talks, we listen.
In today’s article, we look closer at his approach to real estate investing. Over the years, he has often discussed why he rarely buys real estate, but more recently, he has made large investments in the REIT sector (VNQ).
- Warren Buffett rarely invests in real estate.
- However, he recently invested in REITs through Berkshire.
- We review past interviews and annual letters to find clues as to why he favors REITs over private real estate.
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Warren Buffett is one of the very few investors to have managed to compound returns at a 20% annual average for more than 50 years.
Anyone can succeed over a 5-10 year time period, but the real test is whether you can keep going for decade after decade, and Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is one of the rare exceptions to have achieved that.
Below we highlight five reasons why Warren Buffett favors REITs over private property investments:
Reason #1: No Competitive Advantage
In a shareholder meeting decades ago, Warren Buffett explains that they are not equipped to compete with investors who specialize in real estate investing.
The interesting thing here is that back then Warren Buffett already had invested millions into real estate, had significant resources through Berkshire, and Charlie had made his initial fortune in real estate.
Even then, they felt that they couldn’t compete with REITs and other LPs that specialized in real estate investing and had an informational edge over them.
Here you should ask yourself: If Warren and Charlie cannot compete in the real estate space, can you?
A lot of individual investors think that after watching a few YouTube videos and buying a real estate investing course from an online guru, they’re well prepared to become real estate investors.
In reality, most investors are overconfident and overestimate their abilities. Warren Buffett is very realistic about his limitations and understands that unless you are 100% focused on real estate, you’re unlikely to achieve good results investing in it.
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