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

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:

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.

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.

Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2014, at 6:44 PM, chieftp wrote:

    will warren buffet ever have enough money?

  • Report this Comment On August 30, 2014, at 9:03 PM, PeteH66 wrote:

    Hey chieftp:

    "The Giving Pledge is a campaign to encourage the wealthiest people in the world to make a commitment to give most of their wealth to philanthropic causes. The campaign specifically focuses on billionaires (or those who would be billionaires if not for their philanthropy) and was made public in 2010 by Warren Buffett and Bill Gates. The Huffington Post reported in April 2012 that "81 billionaires committed to giving at least half of their fortunes to charity""


    In fact, Buffett had much earlier pledged to give far more than half his wealth to the Gates Foundation, leaving only token amounts to his children. So what, exactly, are you complaining about?

  • Report this Comment On August 06, 2015, at 12:35 AM, wrenchbender57 wrote:

    Don't think Warren really cares that much about the money. With him it is a game and the money is the yardstick to measure how he is doing. And he has made a lot of people rich by riding along with him. And, as others have noted, he gives a TON of money to charities and worthy causes. Check out how he lives as it is NOT a rich person's lifestyle. Well, except for the private jet and I think he still feels a bit guilty about that. He jokes about it occasionally. He is a great, down to earth guy that has had some luck and the intelligence to leverage that luck into a fortune. But he does not act like he is better than anyone else. Read one of his annual reports and you will see what I mean. They are quite amusing.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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