Buffet Says the Dream Is still Alive

Posted by Jim DeBellis on July 13th, 2011

While some analysts are proclaiming that the American Dream is dead with little chance of a resurrection any time soon, Warren Buffet still believes that the dream of home ownership is still a viable option for many Americans. Buffet still lives in the same house in Omaha he bought 52 years ago for $31,500 – and that’s one of his three pieces of practical wisdom for successful ownership.
First of all, forget the dream house if you want to safely realize the dream of homeownership. According to one of the most successful investors of all time, you should find a practical home that meets your families needs, not one that tickles your fancy or indulges your whimsy and fantasies. A solid boring house can be a happy home if you fill it with the people love and the possessions that make your comfortable and happy.
Buffet’s second bit of advice is to hold onto the home you buy for a long while. That is particularly important in this market where equity may be falling for a quite some time before it starts to rise again. If everyone had done like Buffet and bought a sensible house when they were young, paid it off, and kept it throughout their life, the housing bubble and pursuant economic recession would never have happened. Bumping up our lifestyle every time we get a little raise or promotion does not always have positive and sustainable results.
Finally, the Oracle of Omaha suggests that a home must be financially manageable, with room to spare. A fixed-rate mortgage with affordable payments is essential to financial security and to avoiding foreclosure. The best advice is to budget conservatively so that you mortgage payment, including taxes and insurance, is less than 30 percent of your take-home income. So, for instance, if your household nets $4,000 a month after taxes and benefits, your total house payment should be no more than $1,200 a month. Another rule of thumb says that the face amount of your mortgage should be two to three times the amount of your annual salary.
These are pretty sobering numbers, compared to the standards we lived by a few short years ago, but they are historically normal and are the kind of sensible mindset it will take to get the economy back on track so that a new generation can thrive and succeed on an even keel for decades to come.