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Warren Buffett is renowned for his shrewd investments, particularly his knack for buying companies with sustainable competitive advantages. However, his investment wisdom extends beyond companies and stocks.
In fact, there are two non-stock investments that Buffett has made that he finds particularly “instructive.”
“The two investments will be solid and satisfying holdings for the rest of my life and, subsequently, for my children and grandchildren,” 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 farm prices in the Midwest plummeted due to the market bubble. As prices fell, Buffett saw an opportunity to invest.
“In 1986, I bought a 400-acre farm 80 miles north of Omaha from the FDIC. It cost me $280,000, much less than a failed bank had loaned against the farm a few years earlier,” Buffett recounted in his letter.
Buffett then calculated that the normalized return on the farm would be 10%. He also believed that productivity would likely improve over time and that crop prices would rise. He pointed out that “both expectations have been proven,” noting that by 2014, the farm had tripled its earnings and was worth five times what he paid.
Agricultural land has historically demonstrated its ability to appreciate over time, particularly during periods of inflation. This feature makes farmland an attractive asset for many investors.
However, ownership of agricultural land comes with significant obstacles. The initial capital to purchase even small plots of land is a formidable barrier to entry. Moreover, investors must understand agriculture or rely on experienced farm management.
The USDA and other organizations offer programs for individuals to purchase farmland, but primarily this asset class is one that is reserved for accredited investors.
Enter FarmTogether, a company that offers a wide range of funds and customized 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 that only 1% of the best farmland deals reach investors.
With over $2.1 billion in capital and a conservative and disciplined investment philosophy, FarmTogether makes it possible for accredited investors to reap the rewards of this investment class, 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 a commercial property in New York City adjacent to New York University was being offered for sale by the Resolution Trust Corporation (RTC).
Buffett determined that the current unlevered return on the property was about 10%. He noted that RTC has under-managed the property and leasing the vacant shops would boost its revenue.
More importantly, Buffett identified a major opportunity: The largest tenant, occupying about 20 percent of the space, was paying rent of just $5 per square foot, while other tenants averaged $70. He wrote: “The expiry of this nine-year lease was sure to provide a major boost to earnings.”
Armed with this analysis, Buffett joined a small group of investors to buy the property. The decision turned out to be a success.
“Annual distributions now exceed 35% of our original equity investment,” Buffett wrote.
Read more: Warren Buffett used 8 solid, repeatable 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 New York retail property has generated tremendous returns, similar opportunities may be less accessible to the average investor. For those looking for 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 food-based retail with historically strong return potential, offers a turnkey investment solution for account holders.
As a private equity firm, FNRP acts as a transaction leader, providing expertise, doing the work and simplifying the process, while investors can passively collect distribution income.
With properties from the nation’s largest grocery brands, including Kroger, Walmart and Whole Foods, investors can access portions of the properties they want 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 credentials. For a more affordable entry point into real estate with lower minimums, you can invest in vacation home shares and other rentals through Arrived.
Backed by world-class investors like Jeff Bezos, Arrived makes it easy, regardless of your income.
Their easy-to-use platform offers a clean selection of homes, vetted for their appreciation and income potential. Once you’ve found a property you like, simply choose the number of shares you want to buy.
Note that while Buffett is bullish on the future of these two investments, he made them after the bubbles burst and performed extensive analysis to forecast their returns.
He emphasized that if you don’t feel comfortable making a rough estimate of an asset’s future earnings, you should “just forget about it and move on.”
This article provides information only and should not be construed as advice. Offered without warranty of any kind.
