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Warren Buffett is known for his astute investments, particularly his ability to buy companies with durable competitive advantages. However, his investing wisdom extends beyond companies and stocks.
In fact, there are two non-stock investments that Buffett has made and finds particularly “instructive.”
“Both investments will be solid and satisfying holdings for my lifetime and for my children and grandchildren thereafter,” he wrote in a letter to Berkshire shareholders.
He also projected that income from the two investments “will likely increase in the coming decades.”
The first investment began in the 1980s, when agricultural prices in the Midwest fell dramatically due to a bubble in the market. When 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 what a failed bank had lent against the farm a few years earlier,” Buffett recounted in his letter.
Buffett then calculated that the farm’s normalized return would be 10%. He also believed that productivity would likely improve over time and that crop prices would increase. He stressed that “both expectations were met,” noting that by 2014, the farm had tripled its profits and was worth five times more than what he paid.
Historically, agricultural land has demonstrated its ability to appreciate in value over time, particularly during periods of inflation. This characteristic makes agricultural land an attractive asset for many investors.
However, ownership of agricultural land poses significant obstacles. The initial capital to acquire even small tracts of land poses a formidable barrier to entry. Additionally, investors must understand farming or rely on experienced farm management.
The USDA and other organizations offer programs for people to purchase agricultural land, but generally, this asset class is reserved for accredited investors.
Enter FarmTogether, a company that offers a variety of funds and customized investment opportunities for investors looking to put some capital to work in physical farmland. Its rigorous process, backed by advanced technology and industry experts, ensures that only 1% of farmland transactions reach investors.
With more than $2.1 billion in capital deployed and a conservative, disciplined investment philosophy, FarmTogether makes it possible for accredited investors to reap the rewards of this type of investing, just like Buffett.
The second investment also emerged from the bursting of a bubble, this time in commercial real estate.
In 1993, Buffett learned that Resolution Trust Corporation (RTC) was selling a commercial property in New York adjacent to New York University.
Buffett determined that the property’s current unleveraged yield was approximately 10%. He noted that the RTC had mismanaged the property and that renting out the empty stores would improve its income.
More importantly, Buffett identified a huge opportunity: The largest tenant, occupying about 20% of the space, was paying rent of just $5 per square foot, while other tenants were paying an average of $70 per square foot. He wrote: “The expiration of this lease in nine years would surely provide a significant boost to profits.”
Armed with this analysis, Buffett joined a small group of investors to purchase the property. The decision was successful.
“Annual distributions now exceed 35% of our original capital 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)
While Buffett’s calculated investment in a commercial property in New York produced extraordinary returns, similar opportunities may be less accessible to the average investor. For those seeking a passive, hands-off approach to commercial real estate, supermarket-anchored retail properties offer a potentially lucrative avenue.
First National Realty Partners, specializing in grocery retail with historically strong return potential, offers a turnkey investment solution for account holders.
As a private equity firm, FNRP acts as the lead on the deal, providing expertise, doing the legwork and streamlining the process while investors can passively collect distribution proceeds.
With properties from the nation’s largest essential brands, including Kroger, Walmart and Whole Foods, investors can access shares of desirable 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 affordable entry point into real estate with lower minimums, you can invest in vacation home stocks 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, vetted for appreciation and income potential. Once you find a property you like, simply choose the number of shares you want to purchase.
Keep in mind that while Buffett is optimistic about the future of these two investments, he made them after the bubbles burst and conducted extensive analysis to forecast their returns.
He stressed that if you don’t feel comfortable making a rough estimate of an asset’s future earnings, you should “forget it and move on.”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
