By Neil Fjellestad & Chris De Marco
When you think of a business magnate and investor extraordinaire one name comes to mind more often than any other. Billionaire investor Warren Buffett has made most of his money away from Wall Street and maintains a hands-on approach pouring over piles of financial data from every main street company he owns and/or is considering. He stays connected to his own company partly by his decision to keep the home of Berkshire Hathaway in his own hometown of Omaha, even though its success has led to incredible expansion. The company now employs more than 250,000 people and is worth more than $200 billion.
Recently Mr. Buffett has made some observations that are useful to RE investors. “He definitely notices the overall global economy slowing. There has been a major decline in Asia and we are still seeing a lot of problems in Europe. On the flipside, he noticed that the US economy is slowly improving. He believes that business is going to improve no matter which candidate wins the upcoming presidential election. Even though the United States economy is outperforming both Asia and Europe, it would be a lot better if American fiscal leaders addressed our financial problems head-on. This would be a great way to improve American business overall. There is an obvious solution to this problem, and our nation’s leaders know it, but they are refusing to act because all of the upcoming presidential election. The solution is obviously going to involve spending cuts and tax increases. It’s going to get done. The American people won’t stand for it not getting done.”
Beyond observations RE investors should notice what Buffett does and as important what he doesn’t do. “In recent years, Berkshire Hathaway has lost out on some of their major acquisitions due to private equity firms aggressively bidding against us with money that they borrowed. Berkshire Hathaway does not borrow any money for their acquisitions. Rather, they have $40 billion worth of cash on hand. ”
Their well-thought out plans to invest this cash include: a $1b to locate and purchase single homes in distressed markets holding these properties as professionally managed rentals for possible resale consideration 3-5 years down the road. Agreement to lend the conglomerate’s trusted brand to a new venture with Brookfield Asset Management. Berkshire Hathaway Home Services of America unit will become the majority owner of a network of franchised real estate agencies. Brookfield will contribute a network of more than 53,000 individual estate agents responsible for $72 billion of residential real estate sales last year. Berkshire has also won a bid to pay $1.5 billion for a portfolio of home loans from Residential Capital, the bankrupt mortgage lender.