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Warren Buffett Paid $150,000 For A House, But Instead Of Using Cash, Took Out A Mortgage And Bought Stocks – That Move Made Him $2 Billion
Warren Buffett, one of history’s wealthiest and most celebrated investors, made a decision in 1971 that might surprise you.
He bought a stunning Laguna Beach house for $150,000 – roughly $951,000 in today’s dollars – but instead of paying cash, which he could have easily done, he took out a 30-year mortgage for about $120,000. Why? Because Buffett, even then, understood something many people overlook: sometimes, it’s smarter to keep your cash working for you than to sink it all into a single purchase.
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At first glance, the decision might seem counterintuitive. Why would someone with enough money to buy a home outright take on debt? As Buffett explained in 2017 when speaking to CNBC, “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.” The reasoning behind it was simple. “I thought I could probably do better with the money than have it be an all-equity purchase of the house,” he said.
And he was right. Buffett used the $120,000 he borrowed to invest in Berkshire Hathaway stock, which was trading at about $40 a share at the time. “I might have bought 3,000 shares of Berkshire or something like that from the loan proceeds,” Buffett shared.
When he spoke to CNBC, those 3,000 shares were reportedly worth $750 million. As of Dec. 12, 2024, Berkshire Hathaway’s Class A shares (BRK.A) are trading at approximately $690,666 per share. So, those 3,000 shares would be valued at about $2.72 billion today.
To be clear, the house itself wasn’t a bad investment. Buffett recently listed the property for $11 million, meaning he could make nearly 70 times what he originally paid. But as impressive as that is, it’s nothing compared to the nearly 6,250-fold return on the Berkshire Hathaway stock he purchased instead of pouring all his money into the home.
This move wasn’t about necessity – it was about strategy. Buffett recognized the value of leverage. By taking out a mortgage with relatively low interest, he freed up his cash to pursue an investment he believed would deliver a much higher return. His decision highlights a key lesson in financial management: when used wisely, debt can be a tool for building wealth.
Turning $120,000 into hundreds of millions isn’t a realistic scenario for most people. However, Buffett’s approach offers insights that anyone can use. For example, many homeowners view a mortgage solely as a burden to be paid off as quickly as possible. But Buffett’s example shows that, in some cases, it can make sense to use the money you’d otherwise put into a home to invest in assets with higher growth potential.
Mortgages also offer built-in advantages for the average person. Homes generally appreciate by 4–7% annually, making them a steady long-term investment. Meanwhile, monthly mortgage payments build equity, which can act like a forced savings account.
While many would’ve been eager to eliminate debt as quickly as possible, Buffett saw his mortgage as an opportunity to make his money work harder elsewhere.
This isn’t about taking reckless financial risks. It’s about understanding how to balance short-term decisions with long-term gains. Buffett’s move with the Laguna Beach house wasn’t just about real estate or stocks but about using money with intention and confidence.
