In his much-anticipated annual letter to Berkshire Hathaway shareholders, company chairman Warren Buffett revealed some of the lessons he’s learned from investing in real estate over the years.
In the letter, Buffett sizes up a deal in 1986 for a 400-acre farm 50 miles north of Omaha, Nebraska. Instead of basing his investment on the property’s value at the time of purchase — a steal at $280,000 — Buffett valued the property by its future yield, based on predictions that crop prices and productivity would rise.
Smart choice, seeing as the farm has tripled its earnings in 28 years and is now worth five times what Buffett bought it for, he wrote in an excerpt published by CNN.
“I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside,” he wrote. “There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what?”
Buffett then advised budding investors to “focus on the future productivity of the asset” under consideration — not how much the property price will change.
“I thought only of what the properties would produce and cared not at all about their daily valuations,” Buffett wrote. “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.” Buffett has also scored big in recent years as he grew more confident in the housing recovery, actively acquiring businesses related to the market, as The Real Deal previously reported. [CNN] — Angela Hunt