Warren Buffett believes that it is much harder to deal in real estate than stocks as the deal negotiation takes a much longer time with multiple parties involved. He further believes that there are much more opportunities in stocks in the US compared to real estate.
“Well, in respect to real estate, it's so much harder… in terms of negotiation of deals, time spent. The involvement of multiple parties in the ownership, usually when real estate gets in trouble, you find out you're dealing with more than the equity holder,” said Buffet at the annual shareholders meet at Omaha.
“There have been times when large amounts of real estate have changed hands at bargain prices, but usually stocks were cheaper, they were a lot easier to do,” he added.
Interestingly, referring to his late partner Charlie Munger, he said that Munger enjoyed real estate transactions and he did quite a few transactions in the last five years of his life.
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“There's just so much more opportunity, at least in the United States, there's so much more opportunity that presents itself in the security market than does in real estate,” said Buffet.
Highlighting his concerns with real estate transactions, he said that while stock transactions worth billions of dollars can be done in seconds on the exchange platform, real estate deals are not that simple to execute.
“When you walk down to the New York Stock Exchange, you can do billions of dollars worth of business totally anonymous, and you can do it within five minutes, and the trades are complete when they're complete. In real estate, when you make a deal, a big deal with a distressed lender, when you sign the deal, then you go into another phase, then people start negotiating more things and more things, and it's a whole different game,” explained Buffet.
“We did a few real estate deals that came our way in 2008 and 2009, but the amount of time that they would take us compared to doing something intelligent and probably better in securities, there was just no comparison. I mean, in a real estate deal, every sentence is as important as a person,” added Buffett.
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