Why doesn't Warren Buffett invest in REITs?
Poor Rates Of Compounding: Another big reason why REITs generally have low appeal to Buffett and Munger is because real estate generates poor returns on invested capital.
While higher rates negatively impacted nearly every sector of the economy in 2022 and most of 2023, real estate was hit especially hard. Rising interest rates hurt not only the value of REITs' property holdings but also the cost of debt to finance those properties or even refinance already-owned assets.
REITs don't have to pay a corporate tax, but the downside is that REIT dividends are typically taxed at a higher rate than other investments. Oftentimes, dividends are taxed at the same rate as long-term capital gains, which for many people, is generally lower than the rate at which their regular income is taxed.
The short answer is that company founder and CEO Warren Buffett believes that money can be better spent in other ways.
Fundamentally, Warren Buffett doesn't want to own anything that can't produce something, be it income, revenue or some type of profit. To him, gold is the “classic case” of an investment that doesn't produce anything.
April 2, 2024, at 2:50 p.m. Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.
A favorable job market seems encouraging. Robust demand for certain real estate categories, such as that for data centers and need-based asset categories, is likely to keep the momentum going for REITs in 2024.
A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.
Can You Lose Money on a REIT? As with any investment, there is always a risk of loss. Publicly traded REITs have the particular risk of losing value as interest rates rise, which typically sends investment capital into bonds.
REITs are attractive investments in that they don't require investors to know as much or directly manage the properties as real estate developers do, but they have the potential to pay out hefty dividends.
What is Warren Buffett's favorite dividend stock?
With an impressive track record of dividend growth and a resilient business, Visa Inc (NYSE:V) is one of the best dividend stocks to buy according to Warren Buffett. In addition to Visa, Warren Buffett also enjoys dividends from Chevron Corp (NYSE:CVX), Coca-Cola Co (NYSE:KO) and American Express Company (NYSE:AXP).
- The Kraft Heinz Company (NASDAQ:KHC) Number of Hedge Fund Holders: 40. ...
- The Kroger Co. (NYSE:KR) ...
- HP Inc. (NYSE:HPQ) ...
- Aon plc (NYSE:AON) ...
- Capital One Financial Corporation (NYSE:COF) ...
- Coca-Cola Co (NYSE:KO) ...
- Moody's Corporation (NYSE:MCO) ...
- Chevron Corp (NYSE:CVX)
Berkshire Hathaway doesn't pay a dividend itself, but the vast majority of stocks that it owns do. Buffett's such a big fan of dividend payers that a majority of Berkshire's holdings are concentrated in a handful of dividend-paying stocks.
Apple is Berkshire's largest public stock holding by far. Berkshire's $155 billion Apple stake is roughly four times larger than its second-largest holding. Buffett first bought Apple shares in the first quarter of 2016, and Apple's stock price is up more than 500% since the beginning of 2016.
Warren Buffett does not invest in gold. He has invested almost $1 billion in silver, so the reason for his aversion is not simply a dislike for precious metals. The explanation for Buffett's dislike of gold and for his enthusiasm about silver stems from his basic value investing principles.
Top Warren Buffett Stocks By Size
Apple (AAPL), 905.6 million. Coca-Cola (KO), 400 million. Kraft Heinz (KHC), 325.6 million. Occidental Petroleum (OXY), 248.1 million.
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
REITs are a Potent Source for Retirement Income
On average, 70% of the annual dividends paid by REITs qualify as ordinary taxable income, 15% qualify as return of capital, and 16% qualify as long-term capital gains. Most income distributed from REITs is taxed as ordinary income rather than as dividend income.
Investing in REITs can add some diversification to your portfolio and give you access to passive income, liquidity and excellent long-term returns. However, taxes can be more expensive with REITs compared to other investment options, and there are still risks involved with the real estate market.
There is no set lifetime for the trust in most cases. Investors who buy publicly traded shares in a REIT can usually buy as much or little as they like and dispose of the shares when they want or need to. However, if an investor buys a non-traded or private REIT, the investment should be considered illiquid.
Is it a good time to get into REITs?
Summary. REITs have access to capital and are acquiring assets, making it a good time to invest. REITs historically rebound when interest rates pivot and have the potential for rent growth.
In fact, REIT total returns bounced back with impressive performance in the last quarter of 2023. Based on historical experience, the convergence of the wide valuation gap between public and private real estate will likely ensure continued REIT outperformance into 2024.
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.
References
- https://finance.yahoo.com/news/vanguard-p-500-etf-voo-112006029.html
- https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp
- https://www.cnbc.com/2018/08/30/amazon-set-to-open-above-2000-a-share-for-the-first-time.html
- https://finance.yahoo.com/news/nancy-pelosi-takes-position-palo-140009392.html
- https://finance.yahoo.com/news/much-money-invest-reits-123349621.html
- https://www.forbesindia.com/article/explainers/top-10-companies-india-market-valuation/86307/1
- https://finance.yahoo.com/most-active
- https://finance.yahoo.com/news/1-warren-buffett-etf-could-100000820.html
- https://www.gurufocus.com/guru/warren%2Bbuffett/current-portfolio/portfolio?view=table
- https://en.wikipedia.org/wiki/Canadian_National_Railway
- https://www.beefmagazine.com/market-news/bill-gates-is-john-deere-s-largest-shareholder
- https://www.nerdwallet.com/article/investing/sp-500-index-fund
- https://www.fool.com/investing/2024/04/18/could-this-undervalued-stock-make-you-a-millionair/
- https://www.theinvestorspodcast.com/warren-buffett-investment-strategy/module-2/warren-buffetts-4-rules/
- https://www.fool.com/investing/2024/02/07/warren-buffett-investments-recommends-most/
- https://money.com/hedge-funds-use-warren-buffett-advice/
- https://www.investing.com/academy/trading/warren-buffett-investment-strategy-rules-fortune/
- https://www.tipranks.com/stocks/amzn/forecast
- https://www.experian.com/blogs/ask-experian/pros-cons-investing-in-reits/
- https://seekingalpha.com/article/4673082-what-i-wish-i-knew-before-investing-in-reits
- https://www.investopedia.com/ask/answers/021615/does-warren-buffett-invest-gold-why-or-why-not.asp
- https://www.bankrate.com/investing/best-s-p-500-index-funds/
- https://financhill.com/blog/investing/which-bank-stocks-does-warren-buffett-own
- https://www.wealthprofessional.ca/news/industry-news/the-best-reits-to-invest-in-canada-for-2023/380850
- https://www.physicianonfire.com/voo-vs-qqq-which-index-etf/
- https://www.sec.gov/files/reits.pdf
- https://www.sofi.com/learn/content/reit-investing-pros-and-cons/
- https://www.ig.com/en/news-and-trade-ideas/nvidia-takes-the-record-for-the-biggest-stock-market-gain-ever-240223
- https://finance.yahoo.com/news/warren-buffett-reveals-instructions-invest-163624653.html
- https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/sets-us-apart/index.html
- https://www.newtraderu.com/2024/01/09/current-warren-buffett-car-2024-what-car-does-this-billionaire-own/
- https://investorplace.com/2024/02/the-3-best-buffett-bank-stock-picks/
- https://www.investopedia.com/investing/can-you-make-money-stocks/
- https://www.businessinsider.com/how-warren-buffett-spends-money-net-worth
- https://medium.com/due/warren-buffett-shares-his-18-best-tips-for-retiring-from-a-lifetime-of-investing-7873a1fc5d3b
- https://www.morningstar.com/stocks/how-invest-like-warren-buffett
- https://www.fool.com/investing/2023/11/28/why-is-warren-buffett-selling-amazon-stock-instead/
- https://money.usnews.com/investing/articles/top-nancy-pelosi-stocks-to-buy
- https://finance.yahoo.com/news/57-7-warren-buffetts-375-112600155.html
- https://markets.businessinsider.com/news/stocks/warren-buffett-bank-stocks-sales-portfolio-berkshire-hathaway-financial-crisis-2023-10
- https://www.fool.com/the-ascent/buying-stocks/articles/starting-to-invest-in-2024-heres-how-much-youll-need-to-become-a-millionaire-in-30-years/
- https://www.fool.com/investing/how-to-invest/famous-investors/warren-buffett-investments/stocks-owned/
- https://seekingalpha.com/article/4675769-this-could-be-the-best-time-in-my-lifetime-to-buy-reits
- https://warrenbuffettbookreport.weebly.com/weaknessesdownfalls.html
- https://www.tickertape.in/blog/most-expensive-stocks-in-india/
- https://www.nasdaq.com/articles/heres-why-2024-could-be-great-for-reits:-4-stocks-to-buy-now
- https://finance.yahoo.com/news/2-warren-buffett-stocks-buy-084700331.html
- https://www.indmoney.com/articles/most-expensive-stocks-in-the-world
- https://www.fool.com/investing/how-to-invest/stocks/how-to-invest-in-berkshire-hathaway-stock/
- https://www.tipranks.com/stocks/tsla/forecast
- https://www.reit.com/news/blog/market-commentary/hike-stop-and-bounce-reit-performance-after-monetary-policy-tightening
- https://wallethub.com/answers/ci/who-owns-geico-insurance-1000045-2140683736/
- https://trendspider.com/markets/congress-trading/
- https://www.theinvestorspodcast.com/legend-investors-stock-portfolio/bill-gates-stock-portfolio/
- https://www.financialpoise.com/the-reit-income-for-retirement-6-reasons-to-invest-in-reits/
- https://finance.yahoo.com/news/15-best-dividend-stocks-buy-200241053.html
- https://finance.yahoo.com/news/warren-buffett-2024-portfolio-top-124751777.html
- https://www.nasdaq.com/articles/berkshire-hathaway-is-great.-heres-why-you-shouldnt-buy-it.
- https://www.fool.com/investing/2023/10/31/want-to-become-a-stock-market-millionaire-heres-ex/
- https://www.quora.com/Does-Warren-Buffett-use-a-broker-to-invest
- https://admiralmarkets.com/education/articles/shares/the-best-performing-stocks-in-history
- https://www.nasdaq.com/articles/amzn-cost-wmt:-which-strong-buy-retail-stock-is-most-undervalued
- https://www.nasdaq.com/articles/if-you-invested-in-apple-when-warren-buffett-did-heres-how-much-you-would-have-made
- https://www.investopedia.com/ask/answers/021615/what-difference-between-berkshire-hathaways-class-and-class-b-shares.asp
- https://www.kiplinger.com/investing/stocks/warren-buffett-stocks-berkshire-hathaway-portfolio
- https://www.composer.trade/learn/what-is-a-90-10-portfolio-strategy
- https://www.cnbc.com/2018/08/16/warren-buffetts-warning-on-walmart-better-stocks-than-retailers.html
- https://www.nasdaq.com/articles/3-smart-penny-stocks-with-huge-potential
- https://www.investopedia.com/ask/answers/021615/why-doesnt-berkshire-hathaway-pay-dividend.asp
- https://www.ramseysolutions.com/retirement/can-you-retire-on-1-million
- https://finance.yahoo.com/news/time-high-nvidia-stock-still-110200267.html
- https://www.bankrate.com/investing/good-time-to-buy-reits/
- https://finance.yahoo.com/news/15-best-dividend-stocks-buy-133536774.html
- https://www.investopedia.com/world-s-11-greatest-investors-4773356
- https://finance.yahoo.com/news/44-warren-buffetts-366-billion-090600456.html
- https://www.hindustantimes.com/business/us-billionaires-sell-11-billion-in-stock-what-are-jeff-bezos-mark-zuckerberg-up-to-is-a-financial-disaster-looming-101710144481684.html
- https://www.investopedia.com/warren-buffett-4689826
- https://www.fool.com/investing/2023/11/22/3-incredible-warren-buffett-dividend-stocks-to-buy/
- https://www.nasdaq.com/articles/does-warren-buffett-invest-in-gold
- https://www.zacks.com/stock/research/AAPL/stock-style-scores
- https://www.gobankingrates.com/investing/stocks/most-expensive-stock/
- https://www.benzinga.com/general/education/23/03/31504517/if-you-invested-1-000-in-coca-cola-stock-when-warren-buffett-did-heres-how-much-youd-have-now
- https://www.forbes.com/sites/dereksaul/2024/02/26/berkshire-hathaway-stock-rises-to-record-high-heres-how-warren-buffetts-returns-compare-to-sp-500/
- https://www.cnbc.com/berkshire-hathaway-portfolio/
- https://www.fool.com/investing/2023/12/23/3-things-you-need-to-know-if-you-buy-berkshire-hat/
- https://www.usatoday.com/money/blueprint/investing/best-sp-500-index-funds/
- https://qz.com/at-92-warren-buffett-has-led-berkshire-hathaway-to-its-1850712281
- https://www.forbes.com/advisor/investing/best-warren-buffett-stocks/
- https://blog.massmutual.com/retiring-investing/reits-portfolio-invest
- https://www.bankrate.com/investing/warren-buffett-top-stock-picks-of-all-time/
- https://www.morningstar.ca/ca/news/234575/what-happens-if-a-companys-stock-falls-to-zero.aspx
- https://finance.yahoo.com/news/10-000-3-elite-growth-194337998.html
- https://www.investors.com/research/warren-buffett-stocks/
- https://time.com/personal-finance/article/how-to-invest-20k/
- https://www.tipranks.com/stocks/ko/forecast
- https://www.investors.com/etfs-and-funds/sectors/sp500-one-investor-is-the-largest-owner-of-two-thirds-of-u-s-companies/
- https://www.bankrate.com/investing/highest-priced-stocks/
- https://money.usnews.com/investing/articles/best-reits-to-buy
- https://finance.yahoo.com/news/14-money-making-stocks-invest-134504176.html
- https://www.investopedia.com/terms/b/berkshire-hathaway.asp
- https://www.realized1031.com/blog/do-reits-have-a-limited-lifespan
- https://www.investopedia.com/articles/investing/072314/investing-real-estate-versus-reits.asp
- https://www.usatoday.com/money/blueprint/investing/warren-buffett-berkshire-hathaway-portfolio/
- https://www.gurufocus.com/news/247932/bill-gates-foundation-buys-mcdonalds-exxon-mobil-caterpillar-inc-sells-procter-gamble-air-products-chemicals
- https://fortune.com/2023/06/22/warren-buffett-donates-five-billion-wealth-net-worth/
- https://www.quora.com/Do-you-feel-bad-for-Warren-Buffet-s-kids-because-they-re-only-inheriting-1-of-his-net-worth