Don’t know if you caught Warren Buffett’s recent interview on CNBC but in it the world’s most famous stock guru spoke of the investment opportunities currently available in single family residential properties. Did he just say “single family residential” properties? Indeed he did. And if you think this sounds suspiciously like what Jason Hartman has been saying for years, you would be right. The interview clip is short (you can watch it here) but the old guy definitely sees a buying opportunity in real estate right now.
As the founder and chairman of Berkshire Hathaway, make no mistake that Mr. Buffett is still a staunch proponent of stock investing, and who are we to judge? Stocks have served the man well, but the truth is that, due to increased speculation amidst the 24/7 news cycle, today’s stock market is a radically different (and more dangerous) beast that it was when Buffett was cutting his teeth on profits for the first time in the 1950s. One of the reasons it’s so easy for Buffett to make money in the modern stock market is that he already has lots of money and can influence a single stock’s price direction simply by dumping a few truck loads of Berkshire Hathaway funds into it. Price shoots up because “Warren Buffett is investing in it.” The end result is that Buffett makes his money quickly on the back of a quick spike, then gets out while latecomers with much fewer resources are still jumping on the train.
Some might be put off by this method but we see it as smart. Very smart. However, what Mr. Buffett alluded to in the video is that single family residential homes is a much better and likely more profitable endeavor for the average investor without a billion dollars to dump on the market all at once. While Wall Street is still a great place for the super wealthy and brokerage houses which make their money via administrative fees, the churning nature of the stock market is simply too dangerous for the little guy.
The good news is that the little guy can take his modest portfolio and plow at least part of it into an income producing property. If you’re nervous about the idea, start with one and see where it takes you. Following Jason Hartman’s method of selecting and buying rental houses almost guarantees positive cash flow and eventual financial independence. Yes, we did say “almost.” By now you should know there are no guarantees in this life but one huge reason this style of real estate investing tends to outperform others year in and year out can be summed up in two words: universal need. How many people in this world aren’t in the market for a permanent roof over their head? There may be a few nomads in Pakistan who are perfectly comfortable braving the great outdoors night after night but most of us aren’t that hardy.
In fact, the vast majority of people in the world find themselves either building, buying, or renting a dwelling of some sort. This makes it a universal need. Great demand is inevitably accompanied by the chance to earn great profits. Buffett uses as evidence the recent decline of housing prices in most major markets and rightly points out that buying right now is like getting real estate on sale. What Buffett doesn’t mention, but Jason goes into frequent depth on during the course of his The Creating Wealth Show podcasts, is that there is even more good news for property investors.
1.Borrowing Standards are Tougher: It’s much tougher to get a loan now than it was ten years ago. Most banks and lending institutions now require at least a 20% down payment in order to loan you money. It used to be that 5% was sufficient. This is bad news for victims of the Great Foreclosure Crisis and people without cash reserves who want to buy a house, but it’s great news for investors with cash on hand. The continued slump in house sales is great news for investors because it drives the prices down.
2.Rent is Rising: In a confluence of “who would have ever thunk it” rental rates are increasing while house prices decline. Those same people who can’t afford a down payment in the new world of housing are forced to rent, creating a larger demand for rentals than before. This perfect storm of events for investors means you can buy properties cheap and rent them for a bunch.
That’s why Jason Hartman and Warren Buffett think single family residential units are about the best investment you can make today.
The AIPIS Team
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