1. He prefers businesses with higher returns than real estate

Buffett looks for:

• High return on equity
• High free cash flow
• Low capital requirements

Most real estate (especially residential or commercial rentals) produces:

• Low returns (often 4–7% per year)
• High capital requirements
• Significant leverage + maintenance

Buffett has said:

 

“A great business earns far more on capital than real estate does.”

 

He believes buying operating businesses (Coca-Cola, Apple, GEICO, BNSF, etc.) produces much higher long-term returns than buildings.

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2. Real estate is too capital-intensive

Real estate requires:

• Big upfront investment
• Ongoing capex (repairs, HVAC, roofs, etc.)
• Leverage (debt risk)

Buffett prefers businesses that:

• Generate cash without requiring more investment
• Scale easily
• Can reinvest internally at high returns

Example: Apple requires no factories from Buffett; it just gives cash.

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3. Real estate is not Buffett’s “circle of competence”

He openly admits:

 

“I don’t have a special edge in real estate.”

 

Buffett invests where he has deep understanding:

• Consumer brands
• Insurance
• Finance
• Railroads
• Utilities
• Tech (via Apple)

He believes that competitive advantage in real estate is mostly:

• Local information
• Development/regulatory knowledge
• Construction expertise
• Leverage management

Buffett doesn’t want to play in a game where he has no informational advantage.

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4. Real estate is management-heavy

Buffett hates dealing with operations that require:

• Tenants
• Vacancies
• Property maintenance
• Building repairs
• Local council/regulation issues

His strategy is to buy:

• Companies with great managers already in place
• Businesses that do not require his daily oversight

Buying buildings means he gets “owner headaches.”

He prefers simple, passive ownership through owning whole companies.

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5. Berkshire Hathaway already owns huge real estate indirectly

Buffett actually does have billions in real estate exposure, but via operating businesses, not through buying properties directly.

Examples:

• Berkshire Hathaway Energy

Owns land, infrastructure, wind farms, solar farms, and natural-gas pipelines worth hundreds of billions.

• Clayton Homes

Largest builder of manufactured homes in the U.S.

• Nebraska Furniture Mart

Owns huge retail real estate footprints.

• BNSF Railway

Owns a massive amount of land, rail corridors, and buildings.

• REIT holdings

Berkshire has occasionally bought REITs (e.g., Seritage Growth Properties before selling it).

So Buffett invests in real estate, but only when tied to a business, not as standalone property.

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6. Buffett can deploy capital more efficiently elsewhere

He can buy:

• Entire companies
• Insurance float that compounds at higher rates
• Stocks at attractive valuations
• Private deals not accessible to the public

If you can make 10–20%+ compounded safely, buying property that yields 4–6% is unattractive.

 Why Charlie Munger did invest heavily in real estate

Charlie Munger and Warren Buffett had different backgrounds and skill sets.

 Munger made his first fortune in real estate

In the 1950s–60s, before partnering with Buffett:

• He developed apartment buildings
• Built commercial property
• Used debt carefully
• Understood local LA markets

He earned millions in today’s dollars from property development long before Berkshire.

Real estate matched Munger’s strengths

• He understood construction and development
• He knew how to use leverage safely
• He had connections in California
• He could buy cheap land, build, and sell at a high IRR

Munger once said:

“The first $100,000 is the hardest.”
Real estate helped him get that.

 After he became rich, he stopped investing in property

Like Buffett, he shifted to:

• Capital-light businesses
• Equity investments
• High-quality companies

He only used real estate to build wealth early, not later.

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Why real estate works extremely well for normal people

Buffett avoids real estate, but for normal people, real estate is an amazing wealth-building tool, especially in places like Australia.

Here’s why:

 Leverage multiplies returns

You buy a $800k property with $80k deposit.
If it goes up 6% per year (~$48k), your return on the deposit is 60%.

Stocks rarely allow this level of safe leverage for normal investors.

 Forced savings

People naturally:

• Pay the mortgage
• Hold for decades
• Don’t panic sell

This psychological structure makes property a good “behavioural hack.”

 Australia has chronic housing undersupply

Especially Sydney/Melbourne:

• Population rising
• Strict zoning
• High construction cost
• Limited land near CBD

This pushes prices upward over long periods.

 Tax benefits

Australia offers:

• Negative gearing
• Capital gains tax discounts
• Depreciation deductions (property investors)

This boosts after-tax returns.

 Rent is a natural cashflow

Over decades, rent typically grows faster than inflation.

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Why Buffett chooses stocks over property, even though property is good

 He has billions to deploy

Buffett can’t buy:

• 1000 houses
• Or manage tenants
• Or switch in/out of markets easily

He needs high-scale, low-maintenance investments.

Big companies do that. Houses don’t.

Stocks of great companies have higher long-term returns

For example:

• Apple
• Coca-Cola
• Moody’s
• Berkshire subsidiaries themselves

These produce 15–25%+ annual returns in some cases.

Real estate rarely exceeds 6–8% per year without leverage.

 Businesses compound internally

A company reinvests profits and grows without Buffett adding more capital.

A house does not reinvest anything; it just sits there.

 Real estate is too local for a global investor

Buffett cannot be an expert in:

• Sydney property
• Auckland property
• London property
• Hong Kong condos
• New York rentals

But he can evaluate global companies.

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 Summary: Why Buffett avoids real estate