Why Warren Buffett Considers His Home His Third Best Investment

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KEY POINTS

  • Warren Buffett has made billions by investing.
  • He considers his home one of his best investments.
  • The reasons he believes his home is such a good investment may surprise you.

Will Buffett's reasons convince you to invest in a home of your own?

Warren Buffett is one of the best known investors of all time and he's made billions of dollars with his investing skills. But despite the tremendous wealth the Oracle of Omaha has produced, he still considers his home to be his third best investment.

Here's why Buffett believes his home has been such a great purchase.

Why does Buffett consider his home to be such a good investment?

In 2011, Buffett addressed the best investments he had ever made in his life. Perhaps surprisingly, the billionaire didn't talk about the companies he'd purchased or the stocks he bought that made him billions.

Instead, Buffett said, "All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best investments were wedding rings.)"

Buffett's words are an important reminder that a house isn't just a financial investment, but an emotional one as well. Buying a home enables you to create stability for yourself and your loved ones, as well as to hopefully build wealth over time when you pay down your loan and your property appreciates in value.

Because of both the financial and emotional benefits, Buffett made clear that "Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates."

There's an important caveat to homeownership being a good investment

While Buffett is clearly supportive of homeownership, he also included an important caveat that anyone who is thinking of purchasing a property absolutely needs to consider.

Right after declaring buying a home to be one of the best investments he ever made and suggesting that most people should consider purchasing a property, Buffett went on to say that "a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy."

The problem Buffett is referring to is that many people end up taking on mortgages they can't really afford, and are approved for them because lenders don't feel they face a major financial risk. If the lender is financially protected in case of foreclosure, then it's possible some loans will be approved for people who are stretching their budgets too far and who face a real risk of foreclosure.

"Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford," Buffett said.

Ultimately, if you are thinking about buying a house, you should heed this brilliant investor's advice and really take the time to think about whether the investment will be a good one. If you can buy a house at an affordable price that fits into your budget, and you want to set down roots and begin making memories, the purchase can really pay off for you.

But if you're pushing yourself outside of your financial comfort zone, then chances are good you won't be left with positive memories but instead will be forced to cope with ongoing financial struggles to make your mortgage payment. You could also potentially even lose your house if you can't make it work.

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