Despite a slew of interviews in which he proclaims a housing rebound is on the way and that this is an amazing time to invest in real estate, Warren Buffett says NO to buying single-family REOs! Why?
From hitting the cover of Time Magazine to high profile CNBC News interviews, Warren Buffett has been singing the praises of the current opportunity to scoop up incredible deals on distressed real estate with unbelievably low interest rate financing. In fact, he suggests buying a couple hundred thousand single-family homes if you can. So why isn’t he following his own advice?
What Isn’t Warren Buffett Telling You?
Buffet has always loved real estate and he ranks it at his top investment type of all time, but is this all a politically motivated stunt or does he know something else he isn’t letting on?
Actually, he has stated why he isn’t scooping up wide swathes of the country in the form of single-family homes. It isn’t that we are not rebounding or that the discounts on REOs aren’t great. It is the property management.
Property management is not fun, it is a big obstacle when it comes to single families and it is expensive to hire for.
So what are your options?
You can make a ton of money on single-family REOs if you can efficiently tackle the property management challenges. Right now this means either negotiating a really sweet deal on rates with an experienced, professional property management company or starting your own. Unfortunately, everyone is trying to do the latter and offset their costs by seeking to offer their services to others. Plus, it isn’t fun and it is far from being the sexiest or most profitable part of real estate investing.
Where Do You Think Buffet WOULD Invest Right Now?
There are two alternative options for investing in distressed real estate that simplify the management issue and that can offer even greater returns.
1. Note Investing
Investing in mortgage notes means eliminating management altogether. This is where you will find truly passive income. Acquiring notes from banks or other investors can bring steady income, handsome returns, and the ability to sit back on your porch with a margarita and just watch the mailman bring your checks. In fact, Warren Buffett is famous for this type of investment strategy through one of his longest held investments, Clayton Homes.
More advanced investors have also always recognized the advantages of investing in multifamily apartment buildings versus single units. The benefits could go on for pages, but besides lower costs per unit, higher returns, the ability to create higher returns through earned equity in any market and the current rise in rental rates, multifamily means far easier and less expensive property management.
The great news is that banks are loaded with multifamily REOs right now–there is less competition for them meaning deeper discounts and you won’t have to put 100,000 miles on your new Mercedes-Benz SLS AMG to manage your new wealth.
However, you will need to invest in the right bank prospecting software if you want to find where the best deals are hiding and want to save hundreds of hours a month on hunting down those who can sign off on them.