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Warren Buffett is renowned for his shrewd investments, particularly his knack for buying companies with durable competitive advantages. However, his investment wisdom extends beyond companies and stocks.
In fact, there are two non-stock investments that Buffett has made and considers particularly ‘instructive.’
“The two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren,” he wrote in a letter to Berkshire shareholders.
He also projected that the income from the two investments “will probably increase in the decades to come.”
The first investment began in the 80s, when farm prices in the Midwest dropped sharply due to a market bubble. As prices fell, Buffett saw a chance to invest.
“In 1986, I purchased a 400-acre farm, located 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 normalized return from the farm would be 10%. He also believed that productivity would likely improve over time and that crop prices would increase. He highlighted that “both expectations proved out,” noting that by 2014, the farm had tripled its earnings and was worth five times more than what he paid.
Farmland has historically demonstrated its capacity to appreciate in value over time, particularly during periods of inflation. This characteristic makes farmland an attractive asset for many investors.
However, farmland ownership comes with significant hurdles. The upfront capital for acquiring even small tracts of land poses a formidable barrier to entry. Further, investors must understand farming or rely on experienced farm management.
The USDA and other organizations do provide programs for individuals to purchase farmland, but in the main, this asset class is one that’s reserved for accredited investors.
Enter FarmTogether, a company offering a range of funds and bespoke investment opportunities for investors looking to put some capital to work in physical farmland. Their rigorous process, backed by advanced technology and industry experts, ensures only the top 1% of farmland deals make it to investors.
With more than $2.1 billion in capital deployed and a conservative and disciplined investment philosophy, FarmTogether makes it possible for accredited investors to take advantage of the gains of this investment class, just like Buffett.
The second investment also arose from the burst of a bubble — this time in commercial real estate.
In 1993, Buffett learned that a New York retail property adjacent to New York University was up for sale by the Resolution Trust Corporation (RTC).
Buffett determined that the unleveraged current yield from the property was approximately 10%. He noted that the RTC had undermanaged the property, and leasing the vacant stores would enhance its income.
More importantly, Buffett identified a major opportunity: the largest tenant, occupying about 20% of the space, was paying rent of only $5 per square foot, while other tenants averaged $70. He wrote, “The expiration of this bargain lease in nine years was certain to provide a major boost to earnings.”
Armed with this analysis, Buffett joined a small group of investors to purchase the property. The decision proved to be successful.
“Annual distributions now exceed 35% of our original equity investment,” Buffett wrote.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
While Buffett’s calculated investment in a New York retail property yielded extraordinary returns, similar opportunities can be less accessible to the average investor. For those seeking a passive, hands-off approach to commercial real estate, grocery-anchored retail properties offer a potentially lucrative avenue.
First National Realty Partners, which specializes in grocery-anchored retail with historically strong return potential, offers a turnkey investment solution for account holders.
As a private equity firm, FNRP acts as the deal leader, providing expertise, doing the legwork and streamlining the process while investors can passively collect distribution income.
With properties from the nation’s largest essential-needs 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 demands significant capital and investor accreditation. For a more accessible entry point into real estate with lower minimums, you can invest in shares of vacation homes and other rentals through Arrived.
Backed by world-class investors like Jeff Bezos, Arrived makes it easy to, regardless of your income.
Their easy-to-use platform offers a curated selection of homes, vetted for their appreciation and income potential. Once you find a property you like, simply choose the number of shares you want to buy.
Note that while Buffett is optimistic about the future of these two investments, he made them after the bubbles had burst and conducted thorough analyses to forecast his returns.
He emphasized that if you don’t feel comfortable making a rough estimate of an asset’s future earnings, you should “just 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.
