Warren Buffett Told Young Investors To Buy Homes Instead Of Stocks, Calling 30-Year Mortgages 'A Terrific Deal'

When Warren Buffett gives advice, people tend to listen. In 2012, he weighed in on the classic young investor's question – should I buy stocks or my first home? Speaking with CNBC's Becky Quick, Buffett stated: "Well, if I thought I was going to live – if I knew where I was going to want to live the next five or 10 years, I would – I would buy a home and I’d finance it with a 30-year mortgage and it’s a terrific deal."

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He even tossed in some bonus advice: If you're handy, consider buying a "couple of homes," picking them up at distressed prices and renting them out. This is not a bad idea for those who can wield a hammer and handle a tenant or two.

Flash forward to 2024 and the real estate landscape has changed. Prices have surged and mortgage rates are far from the lows they once were. But does Buffett's advice still hold? Surprisingly, the answer is yes – though with a few added considerations.

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Why Real Estate Still Has an Edge

Despite today's high prices, the fundamentals that Buffett emphasized still make real estate appealing. Home ownership can provide financial stability and a buffer against inflation, as property values (and rents) generally rise over time. Although the entry price might be steep, the potential for appreciation remains.

Buffett's favorite part of homeownership? The 30-year mortgage. Unlike rent, which can increase yearly, a fixed-rate mortgage lets you lock in your payments for decades. That's financial predictability you won't find with stocks, where market swings can make your head spin. And while today's mortgage rates are higher than a decade ago, locking in a fixed payment can still be a solid long-term move, especially if inflation keeps increasing.

Buffett's Tip on Buying Rentals

Buffett's advice on rental properties is a bit trickier to follow in today's market. He suggested grabbing distressed properties, fixing them up and renting them out – a strategy that worked wonders when prices were lower and deals were everywhere. While you may not stumble across bargain-basement prices these days, there are still opportunities. Revitalizing neighborhoods or emerging markets sometimes offers good value, especially for those willing to tackle some renovations.

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The New Reality: Be Ready to Do Your Homework

Buffett's advice to young investors in today’s market should come with a slight tweak: look before you leap. Higher prices and rates mean you must consider the financial impact carefully and plan for upkeep costs. However, the potential rewards can be real if you're committed to the long haul and ready to invest time in understanding local markets.

What's the takeaway? Buffett's suggestion of real estate as a stable, long-term investment still rings true, even if it's a little more complicated than in 2012. For young investors looking to buy their first home or dip their toes into rental properties, real estate can offer a path to financial stability and a hedge against inflation. Don't expect it to be an instant win – it's all about playing the long game.

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