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Warren Buffett is known for his savvy investments, especially his skill at acquiring companies with lasting competitive advantages. However, his investing wisdom extends beyond companies and stocks.
In fact, Buffett has made two non-stock investments that he considers particularly “instructive.”
“These two investments will be solid and satisfying holdings for my lifetime and subsequently for my children and grandchildren,” he wrote in a letter to Berkshire shareholders.
He also predicted that income from both investments “is likely to increase over the next few decades.”
The first investments began in the 1980s, when farm prices in the Midwest plummeted due to market bubbles. As prices fell, Buffett saw an investment opportunity.
“In 1986, I purchased a 400-acre farm 50 miles north of Omaha from the FDIC. I paid $280,000, far less than the amount a bankrupt bank had loaned against the farm a few years earlier,” Buffett recalled in the letter.
Buffett then calculated the farm’s normalized rate of return to be 10%. He also believes that over time, productivity will likely increase and crop prices will rise. “Both expectations were vindicated,” he stressed, noting that by 2014 the farm’s income had tripled and was worth five times the price he paid.
Historically farmland has proven its ability to appreciate in value over time, especially during periods of inflation. This characteristic makes farmland an attractive asset to many investors.
However, farmland ownership faces significant obstacles. The upfront capital required to purchase even a small plot of land can create a significant barrier to entry. Additionally, investors must understand agriculture or rely on experienced farm management.
The USDA and other organizations do offer programs for individuals to purchase farmland, but by and large, this asset class is reserved for accredited investors.
FarmTogether is a company that offers a range of funds and custom investment opportunities to investors looking to put their money into actual farmland. Their rigorous process, backed by advanced technology and industry experts, ensures that only the top 1% of farmland deals gain investor traction.
With more than $2.1 billion in capital and a conservative and disciplined investment philosophy, FarmTogether allows accredited investors, like Buffett, to benefit from the gains of this investment class.
A second investment also emerged from the bust—this time in commercial real estate.
In 1993, Buffett learned that Resolution Trust Corporation (RTC) was selling a New York retail property near New York University.
Buffett determined that the property’s current unlevered yield is approximately 10%. He pointed out that RTC had mismanaged the property and leasing the vacant stores would increase its revenue.
What’s more, Buffett spotted a major opportunity: The largest tenant, which occupies about 20% of the space, is paying just $5 per square foot in rent, while other tenants are paying an average of $70. “This cheap lease expiring in nine years will definitely boost earnings significantly,” he wrote.
Armed with this analysis, Buffett purchased the property along with a small group of investors. The decision proved successful.
“Annual distributions now exceed 35% of our original equity investment,” Buffett wrote.
Learn more: Warren Buffett turned $9,800 into a $150B fortune using 8 solid, repeatable money rules. Start using them to get rich (and stay rich) today
While Buffett’s careful investments in New York retail real estate have produced extraordinary returns, similar opportunities have been elusive for ordinary investors. For those seeking passive, hands-off commercial real estate, grocery-focused retail properties offer a potentially lucrative avenue.
First National Realty Partners specializes in grocery-focused retail with historically strong return potential, providing account holders with turnkey investment solutions.
As a private equity firm, FNRP acts as a deal lead, providing expertise, legwork and streamlining the process, while investors passively receive distribution income.
With properties from America’s largest staple brands like Kroger, Walmart, and Whole Foods, investors can acquire a stake in a desirable property, then track and manage the progress of their investment through their personalized account.
Commercial real estate, while promising strong returns, often requires significant capital and investor certification. For easier entry into real estate with lower minimums, you can invest in shares of vacation homes and other rental properties through Arrived.
Backed by world-class investors like Jeff Bezos, Arrived makes it easy for you to do this, no matter your income.
Their easy-to-use platform features curated homes reviewed for appreciation and income potential. Once you find a property you like, simply select the number of shares you want to purchase.
Note that while Buffett was optimistic about the future of these two investments, he made them after the bubble burst and conducted thorough analysis to predict his returns.
He stresses that if you’re unwilling to make a rough estimate of an asset’s future earnings, you should “forget about it and move on.”
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
