Berkshire Hathaway Real Estate: Warren Buffett's Next Big Thing

There are a wide range of business that make up Berkshire Hathaway. But it turns out Warren Buffett recently revealed one of them will be the next big thing.

Aug 30, 2014 at 1:38PM


Berkshire Hathaway Real Estate may not ring a bell, but it turns out Warren Buffett is all for trying to help you buy or sell a home.

The long history
In the fall of 1999 Berkshire Hathaway acquired MidAmerican Energy. Although much has been said about the energy businesses which now make up Berkshire Hathaway, one of the little discussed pieces of MidAmerican is its HomeServices of America business.

Never heard of it? You likely soon will. 

In the 2002 letter to Berkshire Hathaway shareholders Buffett noted:

A few years ago, and somewhat by accident, [MidAmerican] found itself in the residential real estate brokerage business. It is no accident, however, that we have dramatically expanded the operation. Moreover, we are likely to keep on expanding in the future. We call this business HomeServices of America ...[which] is now the second largest residential brokerage business in the country.

And expand it did. Berkshire aggressively acquired other real estate brokerage businesses, and the value of homes it helped be bought or sold (or both) doubled to $37 billion in 2002. He went on to add:

In a very short period, Ron Peltier, the company's CEO, has increased HomeServices' revenues – and profits – dramatically. Though this business will always be cyclical, it's one we like and in which we continue to have an appetite for sensible acquisitions.

But Buffett was -- unfortunately -- exactly right, in calling it "cyclical." Although the real estate arm of Berkshire Hathaway was on quite a run, it all came crashing down as the housing market collapsed in the midst of the Great Recession:

Berkshire Hathaway Real Estate
Source: Company Investor Relations.

Buffett had little to say surrounding real estate in the midst of the financial crisis. In 2008 he simply noted, "last year was a terrible year for home sales, and 2009 looks no better," and in 2009 he only added "though last year was again a terrible year for home sales, HomeServices earned a modest sum."

Yet as you can see, that has all begun to change, and Berkshire Hathaway real estate has begun to again deliver impressive results.

The big change
In October of 2012 it was announced that HomeServices of America partnered with Brookfield Asset Management to form Berkshire Hathaway HomeServices, a real estate brokerage franchise network.

Berkshire Hathaway Homeservices

Source: Berkshire Hathaway HomeServices.

"We are honored and proud to be entrusted with the use of the Berkshire Hathaway name as our new real estate franchise brand," HomeServices CEO, Ron Peltier, noted at the time. "We will convey the strength of Berkshire Hathaway's reputation and its associated principles of integrity and financial stability in everything we do.

Slowly, but surely it has been rebranding its franchise operations across the country.

Buffett himself noted in the latest letter to Berkshire Hathaway shareholders "if you haven't yet, many of you will soon be seeing our name on "for sale" signs."

The reason for the change
As the market still slowly recovered from the collapse, in 2012 CNBC revealed thanks to the low interest rates and low prices, Buffett said "he'd buy up "a couple hundred thousand" single family homes if it were practical to do so."

Yet thanks to the difficulties of managing them, and the reality that buying up hundreds of thousands of homes is easier said than done, Buffett was never able to take advantage of that business opportunity. 

But one has to think the expansion and growth of Berkshire Hathaway HomeServices was the next best option for Buffett. Since Berkshire Hathaway couldn't buy the homes itself, why wouldn't expand its efforts to assist others in the process?

In fact, in the 2012 annual report, we learned the agents participated in $42 billion of home sales, a 33% increase from 2011. Buffett went on to say:

Ron Peltier has done an outstanding job in managing HomeServices during a depressed period. Now, as the housing market continues to strengthen, we expect earnings to rise significantly.

The key takeaway
From this we can learn two things, the first is the tangible reality that Berkshire Hathaway HomeServices should contribute meaningfully to the bottom line of the broader company as its operations expand and gains a deeper foothold in the real estate industry.

The next is the truly massive size and scope of Buffett's Berkshire Hathaway. Buffett himself admitted when MidAmerican was purchased he "barely noticed HomeServices, which then owned only a few real estate brokerage companies." 

At last count Berkshire Hathaway had more than $500 billion in assets on its books, and if it's easy for Buffett to lose sight of a business, how much more so is it for folks like you and me?

But the good news is, whether we know of it or we don't, as HomeServices shows us, seemingly everything under the Berkshire umbrella is something worth investing in. 

Warren Buffett: This new technology is a "real threat"
Buffett has made an incredible amount of right calls through the years, and one innovation could change his entire business. You see, at the recent Berkshire Hathaway annual meeting, he admitted an emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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