When Warren Buffett gives advice, people tend to listen. In 2012 he tackled the classic question of young investors: should I buy shares or my first house? Speaking to CNBC’s Becky Quick, Buffett said, “If I thought I was going to live — if I knew where I wanted to live for the next five or 10 years, I would — I would buy a house and I’d finance with a 30-year mortgage, and it’s a great deal.”
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He even added some bonus advice: If you’re handy, consider buying a “couple of houses,” picking them up at bad prices and renting them out. This isn’t a bad idea for those who can wield a hammer and handle a few tenants.
Flash forward to 2024 and the real estate landscape has changed. Prices have risen enormously and mortgage interest rates are nowhere near as low as they once were. But does Buffett’s advice still apply? Surprisingly, the answer is yes – albeit with a few additional considerations.
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Why real estate still has the edge
Despite current high prices, the fundamentals that Buffett emphasized still make real estate attractive. Homeownership can provide financial stability and a cushion against inflation, as property values (and rental prices) generally increase over time. While the entry price may be high, the potential for appreciation remains.
Buffett’s favorite part of home ownership? The mortgage with a term of 30 years. Unlike rent, which can increase annually, a fixed-rate mortgage allows you to lock in your payments for decades. That’s financial predictability you won’t find with stocks, where market swings can make your head spin. And while current mortgage rates are higher than they were a decade ago, committing to a fixed payment can still be a solid long-term move, especially if inflation continues to rise.
Buffett’s tip on buying rental properties
Buffett’s advice on rental properties is a bit more difficult to follow in the current market. He proposed grabbing distressed properties, fixing them up and renting them out – a strategy that worked wonders when prices were lower and deals were everywhere. While you may not find great prices these days, there are still options. Revitalizing neighborhoods or emerging markets can sometimes offer good value for money, especially for those willing to do some renovations.
