In his annual letter to the shareholders of Berkshire Hathaway, Warren Buffett, one of the world’s most successful investors and one of the its richest men, gave a very interesting piece of advice: “invest in undervalued real estate.”
Buffett, a man whose financial ventures typically have nothing to do with the real estate world, said of buying undervalued properties, “In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier.”
He went on to discuss another instance in which, thanks to the “optimistic lending practices” on the part of foolish institutions, he bought property near NYU’s campus that today is worth much more than it was originally. Land, Buffett seemed to say, is the smartest investment choice one can make these days.
Why Buffett’s Words Smack of Truth
Buffett isn’t alone in his thoughts about real estate, either. Jeff Notaro of Black Sea Agriculture believes in the money there is to be made by investing in real estate. Notaro leads the $1.5 million dollar fund, buying fertile farmland in Bulgaria’s northeastern territories and leasing it back to farmers there. Both Notaro and Mr. Buffett are playing the long game here. According to estimates from the Food and Agriculture Organization of the United Nations (FAO), the amount of arable land per person is expected to sharply decline by 2050 as the population peaks at around 9 billion people. War, continued climate change, pollution, and the depletion of fishing stocks due to abusive practices, finds one UN study, will compound the need for arable lands.
To make a long story short, once we deplete our oceans and pollute the majority of our land, we’ll have no choice but to grow more food on what little space we’ll have. Buying crop-bearing land now before the price skyrockets to meet demand is just a smart investment move. You control the land food is produced on and you’ll control the world.
“The first rule of thumb in the investment industry is to never go against Mr. Buffet, who is the premier investor of our time,” explains Craig Slayen, Principal at Winship Wealth Partners. “The question is what is the best way to follow up on his recommendation on investing in real estate. One of the ways to try and increase your returns and decrease your risks with real estate is to diversify. The best way to do that is to invest in a Real estate investment trust, or REIT. One REIT might own 100 properties, while one REIT index could own 150 companies, each one of which might own 150 separate pieces of real estate. The best thing about it? No one will call you to fix the toilet!”
Now over to you: will you follow Mr. Buffett’s advice and start putting more money into undervalued, potentially arable real estate? Let us know in the comments below.