Spring is finally here and the housing market appears to be making a comeback. With prices that are still historically low and mortgage rates in the 3% to 4% range, owning a home has never been more affordable. That being said, there are still some basic principles that potential home buyers should keep in mind. In the articel below Tara-Nicholle Nelson list 5 real estate buying tips offered by Warren Buffett.
Article by Tara-Nicholle Nelson of Daily Finance
Billionaire. Oracle of Omaha. The most successful investor in the world. All of these are used frequently — and accurately — to describe Warren Buffett, Chairman of Berkshire Hathaway, a holding company with upward of $130 million. Though his stock in trade is, well, stock and trade, over the years, Buffett has actually spun quite a bit of wisdom on real estate, and much of the advice he has given to investors in traded assets would also stand the average American homeowner in good stead.
Looking for some wisdom on the best approach to owning a home? Here’s a sampling of real estate tips from Buffett, right, the third richest human being on the planet.
1. The Basic Premise of Home Ownership — That Homes Increase In Value Over Time — Is Sound
Last spring, the Congressional Financial Crisis Inquiry Commission called Buffett in for an interview. He was asked to explain some of his bubble-era investment decisions, as well as to give his take on what in the heck had happened to the economy. In the process, Buffett expressed his belief that the housing bubble was inflated by an irrational, widespread belief that home prices would only ever go up — an extreme corruption of a generally valid premise. “It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less,” Buffett declared.
The sound premise, Buffett explained, got distorted and eventually caused the housing crisis when Americans started buying multiple homes to cash in on what they assumed was guaranteed appreciation, taking out “liar’s loans,” buying homes with no down payment and with unaffordable monthly payments — and lenders let them — all because of the assumption that prices could never go down.
Clearly, this assumption was wrong. As Buffett said in an earlier shareholder’s letter: “A pin lies in wait for every bubble.”
2. Buy Low (And Now Would Be a Good Time for That)
Buffett writes a letter to Berkshire Hathaway’s shareholders every year that is chock-full of his review of the company’s fortunes (literally) over the preceding year, his analysis of the stock market and the economy in general, and his smart, plain English tips on life and money and on life.
In last month’s annual shareholder letter, Buffett addressed the industry-leading 2010 performance of one of his company’s holdings, which sells and finances manufactured homes. During that discussion, the money maven declared that now would be a sensible time to buy a home, in light of record-high affordability: “Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates.”
And Buffett didn’t stop there. He pointed out his own tenure as a homeowner as an example. “All things considered, the third-best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks,” he wrote. Then, to clarify for the readers who’d want to know what numbers one and two were, Buffett elaborated: “The two best investments were wedding rings.”
3. But Don’t Wait Too Long To Take Advantage of Low Prices
Buffett wrote a 2008 Op-Ed in the New York Times, explaining that buying while prices are low is stressful, because economic markets are volatile and impossible to predict in the short term, even for him. So, when conditions make an investment — in stocks or in a home — particularly advantageous, Buffett says not to hesitate too long. Painting a vivid verbal image to illustrate the likelihood that market prices “will move higher, perhaps substantially so, well before either sentiment or the economy turns up,” Buffett warned: “if you wait for the robins, Spring will be over.”
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A recent report by CoStar indicates that quoted asking rents have increased across all retail property types in the U.S. for the first time in five years. During the first quarter of this year, 70% of U.S. retail markets had positive rent growth, indicating a turnaround for a market segment that has been slow to recover for many years. Growth in retail demand was strongest in western markets like Dallas, Denver, Phoenix, and San Diego.
