Warren Buffett Says Real Estate Is a Lousy Investment: Why He's Wrong

Given that he’s a billionaire many times over, it’s fair to say that Warren Buffett knows a lot about being a successful investor. After all, he’s made a name for himself by identifying quality businesses to put his money into.

But one investment that Buffett has long shied away from is physical real estate. If you look at Buffett’s holdings, you won’t see throngs of income properties. In fact, Buffett has long said that he doesn’t consider buying properties a good investment. While he’s certainly entitled to that opinion, you may want to go a different route in the course of building your portfolio.

While real estate might work for you

Buffett doesn’t like to put money into real estate because he feels it’s difficult to make money in it. But investing in real estate offers a number of benefits.

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First of all, owning a rental property is a great way to generate passive income. And if you want that income to be passive in the truest sense of the word, you can outsource the upkeep of your rental home to a property manager who can handle the legwork involved, from renewing leases to making sure snow is cleared after a storm.

Secondly, buying physical real estate is a great way to diversify your investment portfolio. If you’re currently loaded up on stocks, real estate gives you exposure to a different sector and market. And that could be huge during periods when stocks underperform.

The stock market and real estate market don’t always rise and fall in conjunction with each other. Just take a look at the events of the past seven months or so. While stock values have fallen, home values have soared. And so owning income properties gives you a nice amount of protection in that regard.

Plus, home values do have a natural tendency to rise over time. Now one rule Buffett insists investors should stick to is holding investments for many years rather than trying to get rich quickly. And so if you’re willing to hang onto an income property for many years, you may find that once you’re ready to sell it, you’re looking at a very nice gain.

Embark on your own investing path

There’s nothing wrong with taking investing advice from Warren Buffett. But that doesn’t mean you have to take the exact same approach he’s taken.

Buffett may not feel drawn to physical real estate, and he might even think it’s a lousy investment. But if you feel differently, then that’s reason enough to give it a try.

Keep in mind, too, that if you’re interested in investing in real estate but you’re not sure you want to load up on physical properties, you could always add real estate investment trusts (REITs) to your portfolio instead. Owning publicly traded REITs is similar to owning stocks, only this way, you get some real estate market exposure.

Plus, REITs are known to pay higher-than-average dividends. And reinvesting those payments is another great way to grow a lot of wealth over time.

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