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Warren Buffett Says 'Buying A House Is Usually A Lousy Investment' — Here's Why

While many people view homeownership as a hallmark of financial stability and wealth building, legendary investor Warren Buffett says it includes overlooked costs, which could make buying a house a poor investment.

"Buying a house is usually a lousy investment," said Buffett, who has lived in the same Omaha, Nebraska, home he purchased in 1958 for $31,500 — about $336,164 in today's dollars.

Buffett's home, now worth about $1.4 million, is his only real estate investment. Buffett's estimated net worth is about $136.8 billion.

First, there's the down payment. During Berkshire Hathaway Inc.'s 2021 annual meeting, Buffett talked about his homebuying experience, noting that the down payment was about 10% of his net worth. He delayed buying a house because he wanted to use the money for other investments, to which his wife consented.

Interest, property taxes and homeowners insurance account for a significant portion of the monthly mortgage payment. Owning a home also ties up funds that could be used to invest in stocks or bonds.

Buffett also said homeownership does not guarantee significant financial returns compared to other investment strategies, such as stocks.

With escalating home prices and high mortgage interest rates, buying a home has become challenging for many Americans, and many are choosing to rent instead — a smart move, according to financial adviser Dave Ramsey.

According to Ramsey, renting can be a strategic choice that can save people from stretching their finances too thin and will buy them time until they can afford a house.

Ramsey and Buffett aren't alone in their opinions that renting may be a wiser choice than purchasing a home. Grant Cardone, another high-profile social media personality, said rent is often half the cost of a mortgage because of high interest rates, homeowners insurance, and property taxes.

Starwood’s $10 Billion REIT Tightens Redemption Limits to Ease Liquidity Crunch

New restrictions are expected to last six months to a year
Sternlicht’s Starwood will reduce its management fees

Starwood Real Estate Income Trust, a $10 billion fund managed by Barry Sternlicht’s Starwood Capital Group, is taking a drastic step to preserve liquidity by imposing tighter limits on investors’ ability to pull money.

The vehicle, known as SREIT, will cap monthly redemptions at 0.33% of its net asset value, and 1% a quarter, according to a filing Thursday. Previously, the trust allowed withdrawals of up to 2% of net asset value in a given month, and 5% a quarter.

The new restrictions will likely last six months to a year and are viewed by executives as preferable to selling assets at discounted prices, according to a shareholder letter. Starwood Capital Group will reduce its management fees as long as the new limits are in place.

“As a fiduciary to our stockholders, we cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve,” Sternlicht and SREIT Chief Executive Officer Sean Harris said in a letter to shareholders.

The move is the latest indication that higher-for-longer interest rates are causing cracks in the commercial-property market. SREIT and competitors including Blackstone Real Estate Income Trust faced rising pressure in the second of half of 2022 when investors began requesting more money back, causing the vehicles to enforce previously disclosed limits.

In October 2022, SREIT’s redemption requests exceeded the 2% threshold but all those requests were fulfilled, with the trust leaving some requests unmet a month later.

Redemption pressure eased at the end of last year when it appeared the Federal Reserve was getting ready to cut interest rates. Shareholders requested just $314 million in December 2023, down from a peak of $715 million in January of that year.

But with the economy roaring, policymakers started warning that rate cuts might not happen as soon as previously forecast, complicating the outlook for real estate.

“This was a very hard decision to make, but having managed through six major downturns over our 30-year history, we believe we are making the best decision for all shareholders,” Sternlicht said in an emailed statement. “We anticipate the real estate markets are bottoming and will continue to improve from here, so further leveraging the vehicle or selling our portfolio’s assets to meet monthly redemptions would negatively impact all investors.”

Starwood’s trust has continued to face outflow pressure. In April, shareholders requested $518 million in redemptions. The fund paid out just about $192 million.

SREIT had $752 million in liquidity at the end of April, including $275 million in an undrawn credit line, according to the shareholder letter. With liquidity worsening, executives had to choose between selling assets, increasing borrowings or limiting redemptions.