During the years and especially when the real estate bubble collapsed, Warren Buffett was sharing tips for future home owners though "home flippers" could also find something useful in his words. Here are top 4 tips we caught from one of the richest men in the world.
1. Homes DO increase in value over time
Mr. Buffet thinks that the basic premise of home ownership -- that homes increase in value over time -- is sound. However, the problem [in the housing bubble] is that some people thought that home prices would only ever go up, which is an extreme corruption of a generally valid premise. "It's a totally sound premise that houses will become worth more over time because the dollar becomes worth less," Buffett declared. Another problem was that people were taking out "liar's loans," buying homes with no down payment and with unaffordable monthly payments.
2. Buy when it's low but don't wait for too long
This is the strategy Buffett used throughout years to make its fortune and he thinks that works with homes, too. In one of his annual shareholder letters he wrote after the bubble burst, the "Oracle of Omaha" said: "Home ownership makes sense for most Americans, particularly at today's lower prices and bargain interest rates."
At the same time, Buffett argues that potential buyers shouldn't wait for too long because markets are volatile and impossible to predict in the short term. So, when conditions make an investment particularly advantageous, go for it. "If you wait for the robins, Spring will be over," he added.
3. Smart way to own a home - 3 elements
The three elements that made Buffett's manufactured housing holding perform much better than the rest of the real estate market are fixed mortgage, affordable payments and long-term hold. According to him, the approach was to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. As a result, the company was solvent and buyers kept their houses. He went on to add: "If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did."
4. Dream homes can easily lead to nightmares
Big homes cost more to maintain. In that sense Buffett thinks that buying a dream home can easily turn into a nightmare with rapidly adjusting mortgage payments and unsustainable monthly costs hitting the homeowner's wallet. Buffett warned, "a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."
Sound advice, don't you think?