Warren Buffett's company, Berkshire Hathaway, made a rather sizable bet on the housing market earlier this year. The investment firm bought $800 million of Lennar (LEN 2.85%)(LEN.B 3.19%) stock in August while also purchasing $191.5 million of shares in fellow homebuilder D.R. Horton. While Buffett's company would exit its D.R. Horton position a quarter later, Berkshire boosted its stake in Lennar to $910 million.
Berkshire Hathaway appears to be making a more short-term bet on housing stocks. I plan to take a different page out of Warren Buffett's investment playbook by holding Lennar indefinitely. Here's why I don't plan on selling this under-the-radar Warren Buffett stock.
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It's personal
I started buying shares of Lennar a few years ago. At the time, my wife and I were looking to buy a new home. We really liked the Lennar communities we visited. They had spacious lots, nice amenities, and well-laid-out floor plans.
We kept coming back to one community in particular. We came close to buying directly from Lennar while they were building the community, but the timing wasn't right, and homes were selling fast.
However, last year we bought an existing Lennar-built home in that community with the floor plan we loved. We couldn't be happier with the house. The floor plan is perfect, the lot is fantastic, and the community is excellent.
Owning a Lennar-built home has given me first-hand knowledge of the company's quality. It has made me want to be a long-term owner of the company.
NYSE: LEN
Key Data Points
A smart strategy
My affinity for my own Lennar-built home isn't the only reason why Lennar is a forever stock for me. It's also a very well-run company. One differentiating aspect of the company's operations is its land strategy.
Land has always been an issue for homebuilders. They typically don't have enough of it when the housing market is booming and own too much during a downturn.
Lennar has always wanted to have a land-light business model. It finally achieved that vision earlier this year by spinning off its land assets to create Millrose Properties. The real estate investment trust (REIT) invests in land, which it develops into finished homesites that it sells to Lennar and other builders under purchase option agreements. Millrose generates consistent income through monthly option payments, which it distributes to shareholders via its quarterly dividend payments.
Forming Millrose has reduced Lennar's land risk, enabling it to focus its capital on its core homebuilding operations instead of tying it up in land. The creation of Millrose has also opened the doors to new opportunities for Lennar. It closed its acquisition of the homebuilding operations of Rausch Coleman Homes earlier this year, expanding its footprint into several new markets while enhancing its existing operations in others. As part of the deal, Millrose acquired Rausch Coleman's land assets, and Lennar has options on that land.
A forever homebuilding stock
In an ideal world, I hope to own my Lennar home and shares forever. I love my house and the company's land-light business model. I think its strategy puts Lennar in a stronger position to grow value for shareholders over the long term.
