What You Can Learn From 14-Year-Old Warren Buffett's First Real Estate Investment

Warren Buffett has become a bona fide investing legend and the way he built his fortune only strengthened his credentials. Known as "The Oracle of Omaha," Buffett made his first investment at 11 and hasn't looked back. However, most people may not realize Buffett has invested in real estate since he was 14. Here's the story of Buffett's first real estate investment and what you can learn from it.

Building a fortune the size of Warren Buffett's (an estimated $80 billion) doesn't happen overnight or by accident. Only someone with a keen eye for finding deals with upside can reach the heights Buffett has during his investing career. Although Buffett prefers stocks, the same strategy of finding undervalued deals with upside serves real estate investors well. When Buffett was 14, he found just such a deal.

The young Buffett had saved $2,000 from his job delivering newspapers when he used $1,200 to buy a stake in a 40-acre farm in Nebraska. It's worth noting that Buffett made this investment despite living in Washington, D.C., at the time. Buffett is a Nebraska native, but his father's election to Congress required the family to move to Washington.

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Buffett's investing and wealth-building efforts also included starting a business reconditioning pinball machines and placing them in barber shops. A CNBC profile on Buffett said he had amassed a fortune of around $5,000 by the time he was 20 years old. That's roughly $53,000 in today's money. This business acumen helped explain why Buffett was admitted to the University of Pennsylvania's world-renowned Wharton School of Business as a 16-year-old.

The rest of Buffett's story is history. Today, his net worth is an estimated $130 billion, and a majority of that portfolio is tied up in blue-chip stocks like Apple, Coca-Cola and American Express. That doesn't mean Warren Buffett has completely turned his back on real estate. He still invests in real estate, but Buffett prefers real estate investment trusts (REITs) to buying individual properties.

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That's not to say he doesn't appreciate the occasional farmland investment. In 1986, Buffett purchased a 400-acre farm outside of Omaha. Like many Buffett investments through the years, the farm delivers steady returns to Buffett and Berkshire Hathaway shareholders.

He explained the investment to shareholders in a letter stating, “In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000. I knew nothing about operating a farm. I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out."

Warren Buffett didn't know anything about farming or farmland except that it had the potential to be a great investment. He's not alone in that sentiment. Microsoft mogul (and friend of Buffett) Bill Gates is a huge farmland investor. According to Yahoo Finance, Gates owns 275,000 acres of farmland in 19 states. That makes Gates the largest private holder of farmland in the entire United States.

Warren Buffett is a stock mogul and Bill Gates is a tech titan, yet both men have farmland in their portfolios for one simple reason: Farmland is a winning investment. The average return on farmland between 1991 and 2022 is 10.52%, which explains their interest. Any stock that pays an average dividend of 10.52% for 20 years would be highly sought after by investors. Buffett recognized the potential of farmland as an investment as early as 14.

You may not be able to purchase hundreds of thousands of acres of farmland and good farmland is certainly more expensive than it was when 14-year-old Warren Buffett made his first deal. However, you can still emulate Gates and Buffett by investing in REITs. The beauty of REIT investing is that options exist in multiple sectors, including farmland REITs. So, you don't have to be a millionaire to begin building wealth.

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings. 

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