Warren Buffett’s long-term investment strategy has proven to be successful through virtually all market conditions over the past several decades – recession, high inflation and deflation. If there’s one thing that’s made Buffett one of the most successful investors in history, it’s his commitment to his strategy.
A countless number of new investment techniques and algorithms have come and gone over the years, but Buffett has maintained his relatively simple strategy of picking solid companies and focusing on long-term growth while somehow ignoring the noise that sends most investors into a panic.
It may seem odd that somebody with such a disciplined approach to investing hasn’t purchased real estate – besides a 40-acre farm and his personal residence – especially since the vice chairman of Berkshire Hathaway, Charles Munger, built his fortune with real estate.
There’s a Difference Between Buying Real Estate and Investing in Real Estate
Buffett isn’t opposed to investing in real estate and has invested in several real estate investment trusts (REITs) over the years. However, he knows it doesn’t make sense for him to get into the business of being a landlord.
Buying and managing real estate is more of a business than it is an investment, and Buffett knows that his time is better spent choosing companies to invest in than it is running a real estate business.
Real estate is a business with incredible profit potential, but it’s important to realize that it’s a business and not a passive investment. Many individual investors get into real estate with the misconception that it will be a source of passive income, and most eventually exit those properties once realizing what they’ve gotten into.
The returns realized through owning real estate are a direct result of the time, energy and money that goes into it. While that business has been the source of many great fortunes over the years, it’s just simply not a business that makes sense for most people.
Investing in real estate is a different story. Passive real estate investments allow investors to reap the rewards of this profitable asset class without taking on management responsibilities.
One option investors often turn to is publicly traded real estate investment trusts (REITs). REITs allow individuals to own shares of large real estate portfolios and these companies are legally required to distribute at least 90% of their taxable income to shareholders in the form of dividends.
Over the past 20 years, the FTSE NAREIT All Equity REITs Index produced a total annual return of 12.7%, compared to 9.5% for the S&P 500.
Many investors that have turned to the private markets for passive real estate investments have averaged even greater returns. For instance, the real estate crowdfunding platform CrowdStreet has produced an average internal rate of return (IRR) of around 17% for investors on its fully realized deals since 2014.
Passive investors even have the option to buy shares of individual rental properties now with as little as $100. The Jeff Bezos-backed real estate investment platform has fully funded over 200 rental properties with a total value of over $75 million since its launch in 2021 and paid out over $1.2 million in dividends to investors in 2022.
While there are tremendous benefits to investing in real estate, it doesn’t mean everyone should start their own real estate business. You can visit Benzinga’s Private Markets Offering Screener to find passive real estate investments for accredited and non-accredited investors, with minimum investments as low as $10.
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