Investing In Real Estate... Warren Buffett says it's a good hedge against the coming inflation

While perusing excerpts from the recent Berkshire Hathaway shareholder meeting an interesting headline caught my eye. CNN Money reported "Buffett wary of real estate slowdown ahead."  Based on the headline, I expected to hear that Buffett doesn't like real estate. The actual article talked little about real estate and rather more about real estate brokerages and mortgage companies.

Unsatisfied with another headline that didn't match the article, I Googled further. I found a interesting article about Buffett's take on inflation, one of my biggest worries.

 The article actually discussed inflation, I was encouraged. Next I was pleased to read Buffett likes real estate as an investment and recommends it as hedge against inflation. Here is an excerpt from the article.

The best way to fight inflation for the average consumer is probably this: Buy real estate with 20% down and a 30-year fixed rate mortgage. If you don't already own a home, this means you will likely be able to take advantage of the $8,000 first-time home buyer tax credit. If we get rampant inflation and you don't own a home, you will find your monthly rent obligations soaring. If you buy a home, your mortgage cost will remain the same as your salary increases, leaving you with more cash to save and invest.

The other nice thing about buying a home is that, even if property values appreciate slower than inflation, you can still end up ahead because of the power of leverage. For example:

• Buy a home at $100,000 with $20,000 down. Property value appreciates 3%. Inflation clocks in at 6%. So your property value goes up $3,000, but since your down payment was only $20,000, your cash on cash return is 15% -- easily preserving your purchasing power in the face of 6% inflation.

And that's a worst-case scenario because on average, real estate appreciation tends to beat inflation by a couple percentage points. Leverage magnifies that gain, meaning that inflation is actually the friend of real estate investors.

We were happy to read this from a man whose knowledge and long-term success is legendary.

Thanks for reading and just in case you don't know, we have what many consider the very best real estate search tool for the Arizona market. Click here to search for homes, foreclosure properties, condos, or land in the Greater Phoenix Arizona area.

Gene Urban & Ron Urban
The Urban Team at Realty Executives