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Warren Buffett is known for his wise investments, particularly for his talent for buying companies with sustainable competitive advantages. However, his investing wisdom extends beyond businesses and stocks.
In fact, Buffett has made two non-stock investments and considers them particularly “illuminating.”
“Both investments will be strong and satisfying assets for my life and, subsequently, for my children and grandchildren,” he wrote in a letter to Berkshire shareholders.
He also predicted that revenues from both investments “will likely increase in the decades to come.”
The first investments began in the 1980s, when agricultural prices in the Midwest fell sharply due to a stock market bubble. As prices fell, Buffett saw an opportunity to invest.
“In 1986, I purchased a 400-acre farm 50 miles north of Omaha from the FDIC. It cost me $280,000, considerably less than a failed bank had loaned for the farm a few years earlier,” Buffett recounted in his letter.
Buffett then calculated that the normalized return on the farm would be 10%. He also believed that productivity would likely improve over time and crop prices would increase. He emphasized that “both expectations came true,” noting that by 2014 the farm had tripled its income and was worth five times what he paid for it.
Farmland has historically demonstrated its ability to increase in value over time, particularly during times of inflation. This characteristic makes agricultural land an attractive asset for many investors.
However, owning agricultural land faces significant obstacles. The initial capital required to acquire even small plots of land poses a formidable barrier to entry. Additionally, investors must understand agriculture or rely on experienced agricultural leaders.
The USDA and other organizations offer programs that allow individuals to purchase farmland, but for the most part, this asset class is reserved for accredited investors.
Enter FarmTogether, a company offering a range of funds and investment opportunities tailored to investors looking to invest capital in physical farmland. Their rigorous process, supported by cutting-edge technology and industry experts, ensures that only the top 1% of farmland transactions reach investors.
With over $2.1 billion in deployed capital and a conservative, disciplined investment philosophy, FarmTogether allows qualified investors to enjoy the gains of this investment class, just like Buffett.
The second investment was also born from the bursting of a bubble, this time in commercial real estate.
In 1993, Buffett learned that a New York commercial building adjacent to New York University was for sale by the Resolution Trust Corporation (RTC).
Buffett determined that the current unlevered yield of the property was approximately 10%. He pointed out that the RTC had undermanaged the property and that leasing the vacant stores would increase its revenue.
More importantly, Buffett identified a major opportunity: The largest tenant, occupying about 20% of the space, was paying rent of just $5 per square foot, while other tenants paid an average of $70. He wrote: “The expiration of this favorable lease in nine years would certainly bring a major increase in profits. »
Armed with this analysis, Buffett joined a small group of investors to purchase the property. The decision proved successful.
“Annual distributions now exceed 35% of our initial stock investment,” Buffett wrote.
Read more: Warren Buffett Used 8 Solid, Repeatable Money Rules to Turn $9,800 into a $150 Billion Fortune. Start using them today to get rich (and stay rich)
Although Buffett’s calculated investment in a New York commercial building generated extraordinary returns, similar opportunities may be less accessible to the average investor. For those looking for a hands-off, hands-off approach to commercial real estate, grocery store-anchored commercial properties offer a potentially lucrative avenue.
First National Realty Partners, specializing in grocery-related retail with historically high return potential, offers a turnkey investment solution to account holders.
As a private equity firm, FNRP acts as a transaction leader, providing expertise, doing the legwork and streamlining the process while investors can passively collect distribution revenue.
With properties from the nation’s largest convenience brands, including Kroger, Walmart and Whole Foods, investors can access shares of sought-after properties and then track and manage the progress of their investments through their personalized account.
Commercial real estate, while promising substantial returns, often requires significant capital and investor accreditation. For a more accessible entry point into real estate with lower minimums, you can invest in shares of vacation homes and other rentals through Arrived.
Backed by world-class investors like Jeff Bezos, Arrived makes it easy for you, regardless of your income.
Their easy-to-use platform offers a curated selection of homes, reviewed for appreciation and income potential. Once you have found a property you like, simply choose the number of shares you wish to purchase.
Note that while Buffett is optimistic about the future of these two investments, he made them after the bubbles burst and conducted in-depth analyzes to predict his returns.
He stressed that if you don’t feel comfortable making a rough estimate of an asset’s future earnings, you should “just forget about it and move on.”
This article provides information only and should not be considered advice. It is provided without warranty of any kind.
