Applying Warren Buffett’s Favorite Investing Tactic to Real Estate
This piece is sponsored by Cityfunds (from Nada), the world’s first index-like fund that lets you invest in individual cities (i.e., Miami, Austin, Tampa and more). Download the Nada app to invest in the fastest-growing US cities.
Legendary Warren Buffett famously said, “For most people, the best thing is to do is owning the S&P 500 index fund.”
That means buying $SPY or $VOO — diversifying yourself across ~500 of the largest US companies — and calling it a day.
Can the same principle be applied to real estate?
It’s more challenging to get the diversification level of the S&P 500 in one investment (but not impossible). And in real estate, broad diversification could also work against investors. Here’s why.
- In the stock market: Different industries tend to outperform in varying market conditions. This is why S&P 500 index funds are so powerful — they give investors diversification across all major sectors.
- In real estate: Certain cities or regions can outperform for many decades. Where you invest can matter more than getting diversification across different cities.
Just look at home prices on the West Coast.
City selection is an important factor when it comes to investing in real estate. While many funds invest in different property types (i.e., residential, commercial or industrial), there haven’t been ones targeting specific cities — until now.
Index-like funds that invest in single cities
Cityfunds (by Nada) is the world’s first index-like fund for some of the fastest-growing high-demand cities in the US.
- They have four cities available to invest in: Dallas, Austin, Miami and Tampa.
- Why these four? Located in the Sun Belt region, these cities are among the fastest growing in the US.
- How do I invest? Don’t let a tight budget hold you back from investing in real estate. The Nada Finance app lets you invest in top cities from your phone for as little as $100.
Launched in 2022, each Cityfund fund has ~3-30 properties. But these funds will become more diversified over time as Nada adds more properties.
- The average appreciation rate is 12%.
- They plan on expanding into other cities, with Denver, Nashville, Los Angeles and more in the pipeline.
All four cities rank in the top eight for overall real estate prospects — per PWC’s“Markets to Watch” for real estate trends in 2023.
Download their app here and follow along.
Austin has been their top-performing fund
Austin.Cityfund is up 15.9% as of Feb. 28, with nearly 30 properties inside the fund.
Austin is ranked fourth on PWC’s list — and has become one of the hottest cities to move to amid the remote work rush to get out of West Coast cities and New York.
- Over the past 11 years, Austin has been the top city for business relocation.
- Major companies, including Space X, Google and Amazon, have moved their HQ or expanded to the city.
It’s all done through their user-friendly app — where you can see the homes in each fund and how much they’re appreciating by.
- Automated investing: Investors can set up recurring investments across multiple cities.
- Similar to index funds: Investors can start small with $100 minimum investments.
How do investors profit? Investors receive quarterly dividends from home sales, payoffs, or rental income. Soon, shares can also be sold on their secondary marketplace — launching later this year.
How are investments sourced? Nada’s main product is Homeshares — which lets homeowners trade their home equity for cash across the US. They pick the best ones for their Cityfunds.
How much does it cost? Downloading the app is free, but they charge a 1.5% annual fee on the equity value of each Cityfunds #Series — less than the 2% most real estate investing platforms charge.