Real Estate may not ring a bell, but it turns out Warren Buffett
is all for trying to help you buy or sell a home.
The long history
In the fall of 1999 Berkshire Hathaway
MidAmerican Energy.Although much has been said about the
businesses which now make up Berkshire Hathaway, one of the
little discussed pieces of MidAmerican is its HomeServices of
Never heard of it? You likely soon will.
In the 2002 letter to Berkshire Hathaway shareholders Buffett
A few years ago, and somewhat by accident, [MidAmerican]
found itself in the residential real estate brokerage business.
It is no accident, however, that we have dramatically expanded
the operation. Moreover, we are likely to keep on expanding in
the future. We call this business HomeServices of America
...[which] is now the second largest residential brokerage
business in the country.
And expand it did. Berkshire aggressively acquired other real
estate brokerage businesses, and the value of homes it helped be
bought or sold (or both) doubled to $37 billion in 2002. He went
on to add:
In a very short period, Ron Peltier, the company's CEO, has
increased HomeServices' revenues - and profits - dramatically.
Though this business will always be cyclical, it's one we like
and in which we continue to have an appetite for sensible
But Buffett was -- unfortunately -- exactly right, in calling
it "cyclical." Although the real estate arm of Berkshire Hathaway
was on quite a run, it all came crashing down as the housing
market collapsed in the midst of the Great Recession:
Source: Company Investor Relations.
Buffett had little to say surrounding real estate in the midst
of the financial crisis. In 2008 he simply noted, "last year was
a terrible year for home sales, and 2009 looks no better," and in
2009 he only added "though last year was again a terrible year
for home sales, HomeServices earned a modest sum."
Yet as you can see, that has all begun to change, and
Berkshire Hathaway real estate has begun to again deliver
The big change
In October of 2012 it was
that HomeServices of America partnered with Brookfield Asset
Management to form Berkshire Hathaway HomeServices, a real estate
brokerage franchise network.
Source: Berkshire Hathaway HomeServices.
"We are honored and proud to be entrusted with the use of the
Berkshire Hathaway name as our new real estate franchise brand,"
HomeServices CEO, Ron Peltier, noted at the time. "We will convey
the strength of Berkshire Hathaway's reputation and its
associated principles of integrity and financial stability in
everything we do.
Slowly, but surely it has been rebranding its franchise
operations across the country.
Buffett himself noted in the latest letter to Berkshire
Hathaway shareholders "if you haven't yet, many of you will soon
be seeing our name on "for sale" signs."
The reason for the change
As the market still slowly recovered from the collapse, in 2012
thanks to the low interest rates and low prices, Buffett
said " he'd buy up "a couple hundred thousand" single family
homes if it were practical to do so."
Yet thanks to the difficulties of managing them, and the
reality that buying up hundreds of thousands of homes is easier
said than done, Buffett was never able to take advantage of that
But one has to think the expansion and growth of Berkshire
Hathaway HomeServices was the next best option for Buffett. Since
Berkshire Hathaway couldn't buy the homes itself, why wouldn't
expand its efforts to assist others in the process?
In fact, in the 2012 annual report, we learned the agents
participated in $42 billion of home sales, a 33% increase from
2011. Buffett went on to say:
Ron Peltier has done an outstanding job in managing
HomeServices during a depressed period. Now, as the housing
market continues to strengthen, we expect earnings to rise
The key takeaway
From this we can learn two things, the first is the tangible
reality that Berkshire Hathaway HomeServices should contribute
meaningfully to the bottom line of the broader company as its
operations expand and gains a deeper foothold in the real estate
The next is the truly massive size and scope of Buffett's
Berkshire Hathaway. Buffett himself admitted when MidAmerican was
purchased he "barely noticed HomeServices, which then owned only
a few real estate brokerage companies."
At last count Berkshire Hathaway had more than $500 billion in
assets on its books, and if it's easy for Buffett to lose sight
of a business, how much more so is it for folks like you and
But the good news is, whether we know of it or we don't, as
HomeServices shows us, seemingly everything under the Berkshire
umbrella is something worth investing in.
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Buffett has made an incredible amount of right calls through
the years, and one innovation could change his entire business.
You see, at the recent Berkshire Hathaway annual meeting, he
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only a few investors are embracing this new market which
will be worth over $2 trillion
. Find out how you can cash in on this technology before the
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Berkshire Hathaway Real Estate: Warren Buffett's
Next Big Thing
originally appeared on Fool.com.
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