Is Warren Buffett buying REITs?
He and Charlie Munger, vice-chairman of Berkshire Hathaway, actively dismissed it for many years. However, Buffett has recently invested in REITs as part of his passive income strategy.
Buffet and REITs
However, Berkshire sold its holdings of STORE Capital in 2022 after the company announced it was being acquired by two outside investment funds. Since then, filings have shown that Berkshire Hathaway has not owned shares of any other REIT.
| Company name & symbol | Percent change in share count over quarter | Value of investment at end of quarter |
|---|---|---|
| Sirius XM (SIRI) | 316% | $220,129,000 |
| Chevron Corp. (CVX) | 14% | $18,808,080,000 |
| Occidental Petroleum (OXY) | 9% | $14,552,270,000 |
With rate cuts on the horizon, many publicly traded REITs have rebounded, and the industry as a whole seems well-poised for a recovery in the coming year. Ultimately, the decision on whether or not to buy REITs will depend on the specific circ*mstances and risk tolerance of each investor.
| # | Name | M. Cap |
|---|---|---|
| 1 | Prologis 1PLD | $95.73 B |
| 2 | American Tower 2AMT | $79.99 B |
| 3 | Equinix 3EQIX | $70.98 B |
| 4 | Welltower 4WELL | $53.97 B |
“We don't have any competitive advantage over experienced real estate investors in the field." Buffett himself said something similar and extended this to REITs: I think [real estate] tends to be more accurately priced, particularly more developed real estate, most of the time...
The guru does make some exceptions. Buffett avoids real estate investments due to precise pricing, lack of competitive edge, complex management and corporation tax disadvantages. However, he considers investing in real estate during crises or via REITs, offering diversification, liquidity and expert management.
These were the stocks Buffett had in his portfolio heading into 2024. Some top picks of Berkshire are Apple Inc. (NASDAQ:AAPL), Coca-Cola Co (NYSE:KO) and Chevron Corp (NYSE:CVX).
| Stock | Number of Shares Owned | Value of Stake |
|---|---|---|
| Coca-Cola (NYSE:KO) | 400,000,000 | $23.8 billion |
| Chevron (NYSE:CVX) | 126,093,326 | $18.9 billion |
| Occidental Petroleum (NYSE:OXY) | 248,018,128 | $15.1 billion |
| Kraft Heinz (NASDAQ:KHC) | 325,634,818 | $11.3 billion |
Berkshire Hathaway owns about 50 stocks at a given time and is diversified across industries and categories. However, it leans toward value stocks and has a high concentration of financial stocks. American Express and Bank of America are two of Buffett's favorite stocks.
Why not to buy REITs?
The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.
With healthy property fundamentals and a favorable interest rate environment, REIT fund managers expect the sector to deliver double digit returns this year.
Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.
| Company (ticker symbol) | Sector | Dividend yield |
|---|---|---|
| Medical Properties Trust (MPW) | Healthcare | 27.0% |
| Global Net Lease (GNL) | Diversified | 16.7% |
| AGNC Investment (AGNC) | Mortgage | 14.9% |
| ARMOUR Residential REIT (ARR) | Mortgage | 14.7% |
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.
| Symbol | Fund name | 1-year return |
|---|---|---|
| BRIUX | Baron Real Estate Income R6 | 12.08% |
| JABIX | JHanco*ck Real Estate Securities R6 | 11.07% |
| RRRRX | DWS RREEF Real Estate Securities Instil | 9.26% |
| CSRIX | Cohen & Steers Instl Realty Shares | 9.84% |
By law, 75% of a REITs asset must be invested in real estate. The market value of the property owned by the REIT offers a bit of protection, as long as the value of the property doesn't go to zero. That's not to say that REIT values can't go down, though.
At that rate of return, a monthly investment of $300 in REITs would grow into $1 million in about 30 years. If you invested more money into REITs or those producing a higher average annual return, you could become a millionaire even faster.
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.
Warren Buffet prefers to invest in REITs instead of real property because they are a great source of passive income, are reward-oriented, and are more liquid than property ownership.
What is Warren Buffett's top investing rule?
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.
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.
- Palo Alto Networks Inc. (ticker: PANW)
- Nvidia Corp. (NVDA)
- Apple Inc. (AAPL)
- Microsoft Corp. (MSFT)
- Alphabet Inc. (GOOG)
- Tesla Inc. (TSLA)
- AllianceBernstein Holding LP (AB)
- Walt Disney Co. (DIS)
NYSE: BRK.B
There's currently $167 billion on the books, which alone would be one of the world's largest companies at that market cap. It's safe to say that Berkshire Hathaway can be bought and held indefinitely without losing a wink of sleep.
Warren Buffett's holding company, Berkshire, has been one of Apple's biggest backers. It owns a 5.9% stake, ranking behind only Vanguard Group, which holds 8.1% through its many mutual funds and exchange-traded funds, according to FactSet.
