The One Investment Warren Buffett Gets Wrong, but You Shouldn’t

It's fair to say that Warren Buffett is an extremely successful and shrewd investor. As a billionaire many times over, Buffett's strategy has long centered on investing in quality businesses with competitive advantages. And that strategy has clearly served him well.

But one investment Buffett has never been a fan of is physical real estate. While many investors make a point to load up on income properties, Buffett has never gone that route. But here's why you may want to stray from Buffett's approach in this one regard.

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A great opportunity

Buffett isn't a fan of buying physical properties because he feels there aren't as many opportunities to make money that way. But owning a rental property, or a portfolio of rental properties, could benefit you in a couple of ways.

First, there's the steady income your properties can generate. Many investors enjoy a nice stream of ongoing income via the dividend stocks they hold. Rentals properties can help you achieve a similar goal — but perhaps at a larger scale.

Furthermore, homes have a tendency to gain value over time. If you buy an income property and keep it for many years, you may find that you're able to sell it at a very nice profit. And that actually plays into a strategy Buffett has long advocated, which is to invest in quality stocks and keep them in your portfolio as long as possible.

But there are risks

While owning physical real estate has its perks, you should be aware of the risks involved. First, there's the expense of owning property. Even solid homes end up needing repairs at some point, and you may not be able to generate enough rental income every month to cover repairs in full. And either way, it will cost you something to maintain a rental home and keep it standing, even if nothing goes wrong.

Plus, other expenses can rise — or arise — when you own an income property, like increasing property taxes. When you invest in a company that makes clothing and its labor costs increase, you don't have to pay for that increase directly.

Also, owning an income property is a huge time commitment. You'll need to make sure you're willing to put in the effort. Granted, you could always outsource the task to a property manager. But that could eat heavily into your profits.

Is owning physical real estate right for you?

Buffett seems pretty convinced that there's not a lot of financial upside to investing in physical real estate. But many people who go that route earn a very nice profit over time, so really, your decision to buy income properties or not should boil down to your goals, willingness to give up your time, and appetite for risk.

Buying stocks and holding on to them is arguably a much easier path to take on the road to growing wealth. But that doesn't mean you should write off physical real estate. And you certainly shouldn't balk at the idea of owning an income property just because Warren Buffett isn't a fan.

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