The famed Oracle of Omaha generally doesn’t talk much ‘real-estate’, however, he does believe that a 30-year mortgage is ”the best instrument in the world”, for most people.
“Because if you’re wrong and rates go to 2 percent, which I don’t think they will, you pay it off. It’s a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet.”
Warren Buffett took out a 30-year mortgage in 1971 when he bought his Laguna Beach, California, vacation home, for $150,000 (about $940,000 in todays money), which he sold for in 2018 for $7.5m!
“When I bought it for $150,000, I borrowed some money from Great Western Savings and Loans. So I probably only had $30,000 of equity in it or something like that. It’s the only mortgage I’ve had for 50 years.”
With the ‘proceeds’ of the mortgage/not going in all equity, he was able to buy about 3000 shares in Berkshire Hathaway, which are now worth $750m. So, while all equity home purchase seems to be something that is becoming increasingly popular and desired, it shows that if used right, debt can work in your favour if you are looking to build wealth. Watch Warren Buffett share his Carlifonia real-estate adventure on CNBC.