Why one of the world's richest people took out a mortgage
Berkshire Hathaway (BRK-A) Chairman and CEO Warren Buffett recently listed his Laguna Beach, California vacation home for $11 million. If gets anything near what he's asking, he'll make a decent return on his investment.
He paid $150,000 for the property back in 1971, which is about $900,000 in today's dollars.
What you may be surprised to find out is that Buffet, one of the world's richest people, took out a 30-year mortgage when he bought the 6 bedroom, 7 bathroom seaside spot.
"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 fifty years," Buffett said.
He added, "I thought I could probably do better with the money than have it be an all equity purchase of the house."
And indeed he did.
"That $110 or $120 thousand I borrowed, I was buying Berkshire then," says Buffett.
The businessman says he was constantly buying Berkshire in the early '70s, when the stock was around $40 a share.
"I might have bought 3,000 shares of Berkshire or something like that from the proceeds of the loan — so that's [worth] $750 million [today]."
For most people, the home is the most expensive investment they will ever make, and Buffett believes it's a great investment for a family if they plan to be in the same locale for many years. What makes it so attractive, he said, is the 30-year mortgage.
"If you get a 30-year mortgage it's the best instrument in the world, because if you're wrong and rates go to 2 percent, which I don't think they will, you pay it off," he said. "It's a one-way renegotiation. I mean it is an incredibly attractive instrument for the homeowner and you've got a one-way bet."
As for Buffett's main house in Omaha, Nebraska – don't expect to see that on the market anytime soon.
"The home I live in now I bought in 1958 and I wouldn't trade it for anything," he said.
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