Warren Buffett: Why Real Estate Is a LOUSY Investment?

TL;DR

Real estate investing is generally accurately priced, but there can be big opportunities during periods of chaos in real estate financing.

Transcript

we've both had a fair amount of experience in real estate and charlie made early money in real estate the second point is the more important points real estate is not a commodity but i think it tends to be more accurately priced critically developed real estate more accurately priced most of the time now during the rtc period when you had huge amou... Read More

Key Insights

• ❓ Real estate is usually accurately priced, especially developed properties, due to the competitive nature of the market and widespread knowledge.
• 🉐 Opportunities for significant gains in real estate investing arise during periods of chaos and financing disruptions.
• 🎅 Corporate structures, like C corps, face disadvantages in real estate investing compared to S corps, REITs, partnerships, or individuals.
• ⌛ Berkshire Hathaway has a poor record in real estate investing and does not spend much time or effort in the field.
• ❓ The Irvine Corporation was considered as a potential investment by Berkshire Hathaway in 1977 but was not pursued.
• 🔬 The competitive nature of the real estate market and the structure of corporations make it unlikely for fascinating opportunities to arise in real estate investing for Berkshire Hathaway.
• 🖤 The RTC period presented opportunities for significant gains in real estate investing due to market inefficiency and lack of financing.

Questions & Answers

Q: Is real estate investing considered a commodity?

While real estate is not typically considered a commodity, it tends to be accurately priced. However, during periods of chaos, such as the RTC period, there can be opportunities for mispricing.

Q: Why is real estate investing unfavorable for corporations?

Real estate investing is disadvantaged for corporations under sub-chapter C of the internal revenue code due to additional taxes and lack of competitive advantage compared to structures like S corps, REITs, partnerships, or individuals.

Q: Did Berkshire Hathaway consider any significant real estate investments?

Berkshire Hathaway did consider buying the Irvine Corporation in 1977 but ultimately did not pursue it. There were few transactions of interest, and they missed the boat during the RTC period.

Q: What is the overall approach of Berkshire Hathaway towards real estate investing?

Berkshire Hathaway does not prioritize real estate investing, as they have no competitive advantage in the field and face disadvantages as a corporation. They generally spend very little time thinking about real estate.

Summary & Key Takeaways

• Real estate is typically accurately priced, particularly developed real estate, but there were opportunities for mispricing during the RTC period of high transactions and uncertainty.

• Real estate investing is not suitable for corporations under sub-chapter C of the internal revenue code due to additional taxes and lack of competitive advantage.

• Berkshire Hathaway has a poor track record in real estate and does not spend much time or effort in the field.