Warren Buffett Invests Major Dollars into New Home Construction

Warren Buffett Invests Major Dollars into New Home Construction

Well if that headline doesn't make you believe everything I have been saying I am not sure what will. According to "The Real Deal" article (Warren Buffett Bets Big on Homebuilders (therealdeal.com)) , Warren Buffett invested $814 Million Dollars into three national homebuilders: D.R. Horton, Lennar, and NVR.

What a MASSIVE bet! I absolutely love it, and it makes sense from the perspective of a Realtor who has seen firsthand how difficult it might be to purchase a resale home in today's market, especially in an area like Richmond, Virginia that is still expanding more and more each and every day. Small shoutout to my potential sellers in Richmond, it's still an awesome time to list your home.

As someone who represents multiple builders, I can tell you that the demand is great for new construction homes in neighborhoods that are a short drive to the city. Not only that, new construction is starting to create its own micro-markets within the major markets, which is driving home prices up in areas where 10-15 years ago you may have never seen a master planned community.

So what is the best way for someone to hedge their bet utilizing new construction? Let's approach this from three angles. The first and second ones will be someone who might be interested in purchasing a new construction home.

If I were looking for a home in a certain neighborhood or zip code, I would be looking at the newest of the new home construction homes. That's a mouthful, I get it, but what do I mean by that? If a company, such as Lennar, is beginning a new community adjacent to an area that is beginning to build up, being one of the first homeowners to purchase in that area is one of the smartest things you could possibly do. As more and more homes are built in that neighborhood, the price of the homes is going to steadily increase until the final homes are built. For example, there is a neighborhood towards the West End called West Broad Landing where homes began in the mid 200s when they started selling. As the neighborhood closed out years later, those same homes were selling between $360,000 to $450,000 depending on the model of the home. People are almost doubling the value of their homes within two years, and all they had to do was be the first ones to purchase a home in their new community! Talk about a return on investment.

Let's say you love your home and do not intend on leaving, but maybe you have a little bit of cash sitting on the sidelines that you do not know what to do with. You can also invest in these homes as a rental to add to your portfolio. Purchasing a resale home for investment purposes is almost as difficult if not more difficult than finding a home for you to live in. Picture this scenario: You purchase the first or second house in a new neighborhood, rent it out for a couple of years, someone else has essentially paid to keep the home running for that entire time, then you sell when the neighborhood closes out and you have made a significant return on your investment. Does this work perfectly every single time? No, many factors can adjust what happens in the market, but there are multiple examples of this working out.  The worst-case scenario is that you can hold the home longer while renting it out and have someone else pay your monthly costs while you wait for the next advantageous market cycle to sell.

Lastly, the most simple way to capitalize on new home construction is to invest in the publicly traded builders. Let me be clear, I am a Realtor, not a financial advisor, but I used to work for a national builder, and the return on investment in the stock market on some of them is extremely exciting.

Whichever method you prefer, investing in new home construction and the companies that build them is an amazing way to find your new home, invest in a rental portfolio, or add more equities into your current brokerage account. Any questions on the first two methods? Feel free to message me privately or call me at 804-418-5509. Questions about the third method? Get in touch with your financial advisor, or let me know if I can connect you with one!

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