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We often see titles online that are misleading. Today we take a little time to push back on a video we found on Youtube titled, "Warren Buffet: Why Real Estate Is A Lousy Investment". Taking into account investment strategy, the size of your organization, your entity structure, and your expertise, we show how these blanket statements might not be applicable for you as an investor.   --- Transcript   Hey everybody, welcome back to The Remote Real Estate Investor. My name is Emil Shour. Today, I've got my co host with me,   Tom: Tom Schneider,   Michael: Michael Albaum.   Emil: And we're gonna be talking about and breaking apart a video that we've seen floating around on YouTube, titled Why real estate is a lousy investment. And this was from a speech from Warren Buffett and Charlie Munger during one of their annual conferences. So we're going to break it down and tell you what the video says and give you our thoughts as to why we believe this title is absolutely wrong, and why real estate is actually a great investment. So let's hop into this one.   Alright, guys, so we all just watch this video. And the title is very click Beatty, right? Why real estate is a lousy investment. And I'm sure that was created for a very specific reason to get a lot of YouTube clicks. But when we when we all watched the video, there were some very clear takeaways. First, first one, which is like the first minute or two, Warren Buffett actually talks about how Charlie Munger, his business partner actually made most of his early money in real estate. And that, why they believe real estate is a lousy investment is actually why it's a lousy investment for Berkshire. And so he lists lists a couple different reasons. You guys want to talk about those reasons real quick.   Tom: I’ll start with it's a double clickbait article. It's not just why real estate is a lousy investment, it's Warren Buffett; Why real estate is a lousy investment. And I think I'll let Michael speak a little bit more to one of the arguments, which is the tax implications. Mike, I'll let you lead through,   Michael: Oh of course you give me the tax.   Tom: You know, there you go.   Michael: Smooth!   Tom: Smooth transition, but all, you know, all speak to one of their arguments is one of them is they didn't feel that they had a competitive advantage in and they were mainly speaking to commercial buildings, like talking about like Chicago class, a office, their argument is that is priced pretty effectively. So they didn't feel they had much of an advantage in in any type of price discovery. And I think, you know, there's such a, like an industry, institutional capital in that like larger, you know, Class A commercial space, it makes sense that, you know, as, as them and as an investor, you know, they're they're looking for value in other spaces. It's not necessarily that it's a lousy investment, it's just like, that's not where they're kind of bread and butter is, even though it was in the very beginning of their career. So, Michael, let you I'll let you transition you over to the more technical response on…   Michael: Yeah, tax, vitiated. Yeah, I think just kind of, to paraphrase what you're saying, Tom, for our listeners is they just can't seem to find deals or they don't think that there are deals out there to be had where the there's a disconnect between what the investor can buy it for versus what it's worth. And so in that market, that they talked about that class a commercial stuff, they're just not seeing deals to be swept up. So I think that's, that's kind of the point they're making.   So regarding the tax structure, I'm gonna do my best here. Full disclosure, not a tax professional, not a tax expert, but there are different types of entity structures in which you can have as a business, you can have a sole proprietor, you can have an LLC, an LLC, you can have a C Corp, you can have an S Corp. Just real quick side note, have you guys ever seen Arrested Development?   Emil: Yes,   Tom: Yeah.   Michael: So they talk they talk about instead of, instead of a limited liability company, they want to start a no liability company.   Tom: It's so good.     Michael: So good.   Emil: The money is in the banana stand.   Michael: Money’s in the banana stand.   So So you have your LLC, you have your S corp, C Corp, so they are taxed differently, and they are treated differently as entity structures. It's not all the same. And so determining what is the best entity structure for you as an investor is a really personal decision. And it's a bit of an in depth decision. There's not a one size fits all approach. And we talked about this a lot that you don't necessarily need an LLC to start investing. And there are tons of investors out there that say LLC is our are kind of ridiculous, and maybe a little bit over, over done. And so you can do it in another way.   So Berkshire was talking about, they were talking about Berkshire Hathaway, about how it's currently set up as a C Corp. And so there really is not much of a tax advantage to be investing in real estate because of the current structure that they have. So that's why they said okay for us, it's allows the investment and that's like Tom, to your point, they aren't looking at the types of deals that the three of us are looking at, and that a lot of roofstock investors are looking at in the single family space with a small multifamily space, or even the commercial family value add space. They're just not playing in that same water.   And then also, most of our I would argue that most of us, as individual investors, or partnerships aren't using C corpse, we're probably using s corpse or LLC s. And so that also changes the narrative around what makes an ideal investment. So just like we talked about, in the academy, the way in which you purchase real estate, how you structure your debt, the type of mortgages you're using, how much down payment you're using, can drastically affect the outcome and performance of the property. Same thing can be said for the ownership side of things.   If you are buying this in a C Corp. Yeah, maybe it's not going to perform as well. And you know, maybe Tom, you buy that class, a office building and a C Corp an Emil, you buy it in an LLC, and Emil’s like yeah, this is a killer investment, it makes total sense. Because of all the tax benefits that you're getting as a result of that. Tom, you might think the opposite. So you really have to look at the whole picture. And you really have to understand who's saying it, how are they saying it? And what are they actually talking about? In order to then make a determination for yourself, hey, this is advice I should listen to. Or maybe this isn't applicable to me.   And so for that video, I the my takeaway was that really none of what they were talking about is applicable to me as an individual investor, that invest in smaller and commercial small multifamily deals with the value Add Component inside of an LLC. It couldn't be like more opposite end of the spectrum than from what they were talking about. And so for me, it's like, no, that's real estate's a great investment. It's it, it couldn't be further from a lousy investment.   Tom: Yeah, I guess to belabor the point a little bit, I love analogies. So, you know, Berkshire Hathaway is this huge conglomerate that's structured, most efficiently for the type of business that it does. So that's like saying someone who's like training to be an Olympic weightlifter, you know, what do they think about sprinting, you know, or like, you know, not that one is better than the other. But the way that you structure your business, both from a tax and a liability perspective, there's optimal ways in the many different ways that you can do it. And, you know, Berkshire Hathaway isn't structured for that type of business. Right? And, you know, they speak to it that, like, the way that they're structured, you know, there's there's not other companies that do it and that. Yeah, based on their, their, their business doesn't make sense. With their structure.   Michael: Yeah. And that's like, yeah, in thinking about turning a, like Berkshire Hathaway's, this massive, massive company, we can think of it almost like a cruise ship. And to reorient a cruise ship takes a long time and is really difficult. And it uses a lot of fuel. And you need a very specific person to do it. And so to pick up these onesie twosies and threesies, that a lot of the kind of mom and pop or individual investors are targeting, there would just be no way to do it effectively or efficiently. And so they're going to continue down the path that they're on doing what they do, because they do it really, really well. So it wouldn't make sense for them to try to go buy a single family home in Birmingham, Alabama, for a couple 100 bucks a month cash flow for a stellar return, because they're talking about billions upon billions upon billions of dollars in doing what they're doing.   So there's they're smart enough, they're staying in their lane. They know what they're good at. And they know what they're not good at.   Emil: Yep, exactly. And Warren says that at the end, right, he's like, it's just we're not going to be able to generate a significant return for the level level of capital that we have. Right? And so the big takeaway for me is, it's everyone looks up to Warren Buffett, like, obviously, you want to invest like in one of the best investors of all time, but you also got to know he's playing a completely different game from you, like, you got, you're playing. All of us, we're playing a completely different game than Warren Buffett.   And so when you see headlines like this, you know, it's good to remember that it's, he's saying it for the level he's at. He doesn't mean that for every single investor everywhere, we obviously know we talk about it, we have people who come on the podcast, who investing in real estate has absolutely changed their lives, help them achieve financial freedom. Like if you ask them, it's the best investment they could have ever made. Right. So yeah, just important to put context to all these, these things you see out there.   Michael: And another really quick side, tangent, another one of those Have you seen Have you guys seen Kevin Hart's stand up where he talks about staying in your financial Lane?   Emil: No   Tom: No.   Michael: Oh, man, you gotta go check it out. He goes, man, it's so difficult to go out with like, all these big professional athletes who they'll have so much money to spend. So when the bill comes, you know, when they're out, it's $5,000. And they're all like, Oh, yeah, we'll split it. And Kevin's like, Oh, I gotta move money for my checking account, my savings account so I can keep a debit card. Yeah, it's hysterical. He's like, just stayed. You're financially know where you're at play. There. You're Gonna have way more fun. If you haven't seen it, I highly recommend you checking it out.   Emil: Do we have anything else to add here? Guys?   Tom: I'd say just a click baity article. Yeah, click baity article.   Emil: And you know, they talked about one last thing. They talked about not being operators or having an experience there. It's also they don't want like, I guarantee if Oren and Charlie wanted to become good operators, they would absolutely do it and crush it in real estate. They're just so far along and know what they're good at that they've stayed there. So, you know, if you're early, like there's only one way to become a good operator, right? You have to invest that takes time you get better at these things. And yeah,   Michael: I just, I think that's a really great point. And Neil, and to piggyback off that, I think that to generate the types of returns that they are generally consistently generating, they would need to go cut their teeth, so to speak on a massive, massive real estate portfolio, or a massive real estate project, versus everybody who's just starting out, or who's got a couple deals under their belt, I mean, you get to determine what kind of business you want to run and build that from the ground up.   And so if you can go get your experience and cut your teeth on the single family home space, or a small multifamily space, or even the small commercial multifamily space, wherever it makes sense for you to begin, you can do that. And you can go learn those lessons, the hard way and go to the school of hard knocks, and really come away with, you know, being a better operator, a more efficient operator, and then go look to scale up, once you already have this huge business, to try to go learn something on the smaller scale doesn't make sense. And so you've got to go play in the upper echelon and go learn on the big scale. Well, that's really scary. And so we talk a lot about on the podcast, and I've said from my past career that we always have to ask ourselves, what's the bet, whenever making a decision? What's the bet, and if you're betting a really big amount on your decision, then you better pay a lot of attention to it and give a lot of time and energy and focus to it.   If the bet is smaller than Okay, roll the dice, see what happens. And so for Berkshire, their bets are big. And so they want to go learn it right? And it just doesn't sound like there's an effective way or an efficient way for them to do that.   Tom: Exactly. I mean, the amount of capital that's being deployed is just so key in here and looking at the market cap of Berkshire Hathaway, their class A, it's, you know, over half a trillion dollars, like 660 billion so like, you know, if they wanted to, like, deploy money related to real estate, that's of any significance, you know, there, it would just be, you know, you're buying these huge, you know, Class A, whatever multifamily or huge, you know, commercial and that's, that's not their sweet spot. So, I mean, it's not even relevant talking about single family or smaller stuff.   Michael: But the new investment and Tom just for everybody who's listening who might not be familiar, what is a market cap mean?   Tom: It is the the total value based on the shares outstanding. Well, basically what it is it multiplies the number of shares outstanding by the price per share. So it kind of gives you a rough valuation.   Michael: Perfect. And so bigger valuations means bigger dollars are at play, right?   Tom: That's right.   Emil: Awesome, cool, guys. So I think the big takeaway here is that we're all smarter than Warren Buffett and Charlie Munger and those guys should retire now. Just kidding. We're just we're just debunking the the clickbait out there. That's what we're trying to do. Alright.   Michael: Just a couple of guys, You know?   Emil: Yeah, exactly. Just a couple guys. Alright guys, that we had this conversation. If you're listening, go ahead on YouTube. Leave us a comment. We're going to be doing a little bit of a swag giveaway. So leave us a comment, subscribe. Let us know what you think of this episode. And make sure you check out our podcast playlist that has a bunch of previous episodes, and we will catch you on the next episode.   Happy investing.   Tom: Happy investing.   Michael: Happy investing.