Why I Avoid Buy-to-Lease and Follow Warren Buffett Instead

Warren Buffett at the Berkshire Hathaway AGM

Over the past two decades, many investors have made a lot of money with rental real estate. I think the sector has appeal for some investors, but I prefer to follow Warren Buffett’s advice.

Despite being one of the richest people in the world, Buffett, or the “Oracle of Omaha” as he is often called, does not own significant real estate. Unlike other billionaires, the investor tends to avoid real estate, preferring stocks and stocks instead.

He doesn’t avoid real estate because he thinks it’s a bad investment. He said he avoided real estate because he didn’t understand the industry. By comparison, Buffett has been buying stocks since he was a teenager. That’s about eight decades of experience.

The Warren Buffett Approach

I’m in a similar position as I’ve never owned rental property, but I have significant experience as an investor.

Additionally, I am aware that rental properties can be difficult to manage. They can also be expensive to repair if something goes wrong. Additionally, in recent years the government has introduced a series of tax and regulatory changes, increasing costs for homeowners.

These challenges can be straightforward for investors with a large rental purchase portfolio. Unfortunately, I don’t have the money, time or experience to build a large and diverse portfolio of rental properties. Nevertheless, I have time to build a large and diversified portfolio of stocks and shares.

This is the main reason I follow Buffett’s advice and stick to what I know.

Buy-to-let alternative

That’s not to say that I completely avoid the real estate industry. I have some exposure to the sector through real estate investment trusts (REITs). One of my most important holdings is Great Portland Estates, which has a portfolio of commercial properties in London’s West End. It would be next to impossible for me to personally build exposure to this market, but I can buy shares in the trust for less than £10.

By using stocks and shares to invest, I can also spread my risk across different sectors. In addition to Great Portland, I also own the insurance group Admiral. This gives me exposure to the insurance sector, and the company also offers an attractive dividend yield of 5%.

The only downside to using this Buffett approach rather than buying a buy-to-let property is the fact that I have to trust other managers to take care of my money. Investing in a business means investing in the skills of that management team. Not all managers have the interests of shareholders at heart.

On the other hand, owning and managing my own rental properties means that I look after my interests. Equity investments are also much more volatile than rental assets.

Despite these drawbacks, I believe that following Buffett’s advice and sticking to what I know is the best way to build long-term wealth.

The post Why I avoid buy-to-let and follow Warren Buffett appeared first on The Motley Fool UK.

More reading

Rupert Hargreaves owns Admiral Group and Great Portland Estates. The Motley Fool UK recommended Admiral Group. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

Motley Fool United Kingdom 2022

About Robert Wright

Check Also

MGM Resorts and Others Urge FERC to Reject Incentives for NV Energy’s $2.5 Billion Greenlink Transmission Project

Diving brief: Nevada taxpayers’ attorney Public Citizen and MGM Resorts International and Caesars Enterprise Services …