Warren Buffett tends to tailor his advice to fit the precise moment in history. For example, it may be a good idea to purchase a fairly priced home when interest rates are low. On the other hand, buying property when home prices remain high and interest rates are rising is a riskier proposition.
View it as an investment
Buffett suggests that potential home buyers approach the process as they would approach buying a specific stock. You wouldn’t buy a stock if you weren’t confident that it would increase in value. Why buy a home above market price, knowing it will take you decades to recoup your investment?
Buffett asks a question of would-be home buyers with stars in their eyes and a fear of missing out. How much have they budgeted to reshingle the roof or dig up the septic field? When it comes to being a homeowner, what can go wrong will go wrong.
Buying a home is more than finding a way to swing the down payment, closing costs, and monthly mortgage payments. There will always be maintenance and repair costs to cover.
If you view a home purchase as an investment, it means factoring in the total cost, including upkeep.
According to Redfin, home values increased by an average of 45% between 2019 and mid-2022. If you’re new to the housing market, you may not realize how abnormal that is. If you base a home purchase on the belief it will appreciate at an annual rate of 5%, 10%, or more, you’re likely to make a very bad buying decision.
Depending upon where you live and the condition of your home, annual appreciation may — or may not — keep up with inflation. Never buy a home believing it will appreciate by a specific amount each year.
Think long term
Buffett isn’t looking to make fast money. He’s all about finding long-term investments that he understands and believes will succeed. The Buffett approach makes sense when it comes to real estate, too.
When you buy a property you can afford and hold it for the long term, you’re better able to weather the years when appreciation doesn’t keep pace with inflation.
Although he has no interest in buying thousands of homes and becoming a landlord, Buffett has often said that buying a house was one of the smartest financial moves he ever made.
The trick is to be strategic about it. Don’t fall into the trap of believing you’ll never be able to buy a home just because the market is too hot to handle right now. Waiting for the right house at the right price will pay off.
You’ll need to be patient as you check real estate listings and keep an eye on interest rates. And then, when you do buy a home, you’ll have to be patient as you pay the mortgage off and the home gains value.
There are always going to be stories about people who made millions day trading in the stock market. And there will always be tales of home buyers who got lucky by buying at a bargain basement price and then selling when the market was hot.
Those are not the norms. Typically, it’s the steady, patient investor who walks away with money in their bank account.
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