As one of the most successful investors of our time, Warren Buffett knows a thing or two about establishing a wealth-building strategy and sticking to it. But surprisingly, Buffett has never been much of a fan of investing in real estate.
If you're a fan and follower of Buffett, you might opt to steer clear of real estate yourself. But here's why you may not want to go that route.
There's a world of opportunity -- if you make the right choices
A big reason Warren Buffett doesn't tend to invest in real estate? He feels that developed real estate is priced accurately most of the time.
Why's that a problem? Buffett has enjoyed vast success by putting money into companies that are underpriced and poised for growth. But that strategy doesn't translate into a market where Buffett feels there simply aren't bargains to be had.
But while it's easy to see why Buffett might opt to stay away from real estate investing, that doesn't mean you should follow suit. In fact, one of Buffett's core pieces of advice actually applies quite well to the real estate market.
Buffett has famously said that you shouldn't own a stock for 10 minutes if you don't intend to own it for 10 years. But while that "buy-and-hold" approach certainly works well within the context of choosing stocks, it applies to real estate as well.
Home values have a tendency to rise over time. And so, if you're looking to make a quick buck, you might get burned by purchasing real estate. But if you're able and willing to hold onto your real estate investments for many years, there's a good chance they'll end up gaining value and you'll end up turning a profit -- even if you have to sink money into expenses like maintenance and property taxes along the way.
Furthermore, if you do a good job of buying homes in markets with strong rental demand, you can secure a nice, steady stream of income via the properties you own. That money could cover the cost of owning those properties as you sit back and wait for their value to increase through the years.
You can also look outside of physical properties
Although Warren Buffett may not be an advocate of scooping up income properties, buying REITs, or real estate investment trusts, is a different story. REITs are more similar to stocks in that they're simply companies that operate different types of properties and make money in the process.
One of the best things about REITs is that they tend to pay higher-than-average dividends. That's money you can reinvest through the years to grow even more wealth in your portfolio. Plus, REITs are a great way to diversify, which could also lead to added growth while protecting you from losses during stock market downturns.
Don't shy away from real estate
Warren Buffett clearly has his reasons for not investing in physical properties, but that doesn't mean doing so is the wrong move for you. And if you'd rather dabble in real estate without taking on the work and risk of owning income properties, you can look at adding REITs to your portfolio instead.