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?