Since many of us have lost a home, lost their job and see nothing but bad news all around, how can Warren Buffett announce today that now is the time to buy residential real estate? Well, considering he is one of the smartest and wealthiest investors in the World, let's take a look and see what he sees. First, the large builders (Pulte, Lennar, DR Horton) have all posted small gains this quarter; the pending home sales were up in January; mortgage purchase applications increased in January and best of all, mortgage interest rates are at record lows. In other words, Buffet sees long term value in residential real estate because of low prices, low interest rates, shortage of inventory and long term equity growth. He even suggests to finance the home purchase to really take advantage of these economic factors.
What if you are a cash buyer or investor? An even better opportunity presents itself here. First, tenants. There are a lot of Americans out of work or who have lost their home, but still need a place to live and will now become renters. Also, with your cash sitting in the bank it is not actually working for you but for the financial institution where it sits. They are lending it out to other institutions, people, businesses and earning a small income from it everyday. In return, they pay you a small monthly dividend or interest return. Buying residential real estate using that cash now allows you to become the bank. It ensures that you earn that daily/monthly income, while paying a small percentage or fee back to someone else, like a landscaper, plumber, etc. Yes there are risks, but a long term hold right now looks like a solid investment.
So based on this analysis, I would say that Warren is correct, again! So everyone waiting to buy a home or those with money sitting on the sidelines, earning no interest, call your local realtor and see what is available in your area. You might find a gem that could earn you good short term income, long term equity growth or both.
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