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You are here: Home / Benefits of Real Estate Investing / Oracle of Omaha on Housing

March 8, 2012 by Peter Maclennan Leave a Comment

Oracle of Omaha on Housing

Warren Buffett told CNBC that he would buy a couple hundred thousand houses if it was practical. Buffett’s investing prowess has consistently placed him in the top 5 wealthiest men in the world.

Buffett realizes that current home prices combined with the low interest rate financing environment provide a unique buying opportunity. Investors who buy now, rent out the unit for more than the carrying costs, and hold their investment for the long term are likely to have a great investment.

An investor with $50,000 could buy a $200,000 home here in Contra Costa County that has 3 bedrooms and 2 baths. Assume the interest rate for this 30-year mortgage is 5.00%. The payment on a $150,000 mortgage at 5.0% is $805 per month or about $9,700 per year.

Taxes, insurance, and maintenance will add about $500 per month. This investor chooses to have a property manager for the property which will run another $150 per month. Total expenses for the property will be $650 per month or $7,800 per year. Expenses plus the principal and interest payments should total $17,500 per year.

A 3-bedroom home in Concord, CA should rent for at least $1,650 per month. The total income will be about $19,800. The property will provide the investor with about $185 per month or $2,220 this is a return of 4.44% per year.

If the property never goes up in value through the life of the mortgage, and the rent never changes the investor will also be paying down the mortgage. The investor will have turned a $50,000 investment into $185 per month and a $200,000 value. This computes to a return of almost 7.25% per year.

Do you think housing prices will stay flat for 30 years? Do you think rents will be flat for 30 years? If rents and housing prices go up, the return above will increase.

Do you expect your stock market investment to perform this well over the next 30 years? If not, give me a call at (925) 385-8798.

Disclaimer: This is not an investment recommendation. Investors should do their own research. This post is for informational purposes only.

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Filed Under: Benefits of Real Estate Investing, Real Estate Investing

About Peter Maclennan

Peter Maclennan is a Real Estate Broker at Maclennan Investment Group, Inc. a real estate brokerage and advisory firm. From novice investors to institutional property owners Peter provides tailored service to his client's needs. Call him today to discuss your real estate need at (925) 385-8798 or visit him on the web at https://www.maclennaninvestments.com. CA DRE License#01801793

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