The One Investment Warren Buffett Gets Wrong, but You Shouldn’t

The One Investment Warren Buffett Gets Wrong, But You Shouldn’t

You’ve got to hand it to Warren Buffett — the man sure knows how to grow a portfolio into billions of dollars. And he’s gotten to that point by investing savvily in the right businesses.

But one investment Buffett has long shied away from is real estate — specifically, physical real estate. While a lot of people do quite well for themselves owning income properties or flipping homes for a profit, Buffett doesn’t like to go that route.

And that’s just fine — clearly, he’s not exactly struggling, so why should he push himself outside of his comfort zone and invest his money in assets he’s not on board with? But while real estate investing may not work for Buffett, that doesn’t mean you have to take a similar approach to building your own portfolio.

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Don’t miss out on a great passive income opportunity

There are different steps you can take to set yourself up with an ongoing stream of passive income. You could load up on dividend stocks, for example, and sit back and collect those payments. Similarly, you could fill your portfolio with REITs (real estate investment trusts), which allow you to invest in real estate without having to acquire a physical property you’re responsible for maintaining.

But if you’re willing to put in the time to oversee a rental property, you could set yourself up with a steady income stream for many years. And while you can argue that rental income isn’t as “passive” as the income you might get in dividend form, since you’ll have to actively manage a property and its tenants, you can also outsource that task to a property manager if you don’t want to do it yourself.

Meanwhile, homes have a tendency to gain value over time. And so if you buy an income property, hold it for 20 or 30 years, and then sell it, you might walk away with twice the amount you bought it for. And that’s on top of that rental income you get to collect through the years.

House-flipping is a viable option, too

While owning a rental property is one way to make money in real estate, it’s not your only option. You could also fix and flip homes if you want to enjoy more of a short-term profit.

Now, you should know that house-flipping does carry some risk. Granted, so does owning a rental home, but when you get into the house-flipping business, you risk sinking far more money than anticipated into renovations and shorting or negating your profits, among other things. But if you do your research ahead of time, buy a home at the right price, and budget carefully for improvements, you might walk away with a profit you’re happy with.

You don’t have to do exactly what Buffett does

Warren Buffett has a lot of great advice for investors. For example, he’s a firm believer in holding stocks for many years, and he also thinks index funds are a great choice for everyday investors who want to diversify and take some of the guesswork out of choosing stocks.

But just because Buffett isn’t a fan of investing in physical real estate doesn’t mean it’s the wrong choice for you. And you may find that flipping homes or owning an income property ends up making you quite wealthy in your own right.

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