22. March 2011 07:28
In Buffett's most recent letter to his company's shareholders, he made a striking declaration of his feelings about owning a home: "home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates." Warren Buffet just so happens to be the third richest human being on the planet.
Buffett believes now is the time to purchase as affordability has never been better. And he’s right that a home is a very strong investment, with abundant yields, both financial and emotional. According to a recent survey, the American Dream of homeownership lives on in the hearts of the 72 percent of Americans who say owning the place they live is a part of their personal American Dream.
Here are 3 basic steps Buffett urges every American who owns a home - or wants to - to include in their approach to home ownership:
1. Ditch your "dream home" for a practical pad. When it comes to homes and mortgages, bigger is not always better. What is better is to buy a home that makes sense for your family's future and its finances. In Buffett's own words, "a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender . . . facilitates his fantasy." Instead of buying dream homes, Buffett went on, the goal should be to buy a home you can afford.
2. When you buy, plan to hold. Warren Buffett is worth $50 billion, and he still lives in the home he bought 52 years ago - for $31,500. Many Americans got caught in the housing crash when they took on mortgages they could only sustain for a short period of time, then weren't able to refinance as expected. Buffett's stock investing advice has long been to avoid making investments you can't hold for at least 10 years. Likewise, buying a home should be done with a long-term plan to avoid catastrophe when home values fluctuate in the short term.
3. Mortgages should have fixed, affordable payments. In his shareholder letter, Buffett points out that a housing company he holds has done vastly better than other real estate and mortgage industry players and attributes their success to the fact that "our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income."
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