Charlie Munger Said He Was Still Buying Apartment Complexes ‘To Give Me Something To Do’ but Ran Them the Opposite Way, ‘It’s All Deferred Gratification’

In February 2023, nine months before he died at 99, Charlie Munger was asked at the Daily Journal annual meeting how rational delayed gratification still was “for a person of your age and wealth.” As Kingswell transcribed it, he said he hadn't stopped. “I'm still doing it. Now that I'm old, I buy these apartment houses to give me something to do.”

The buildings were not the odd part. The odd part was how he said he ran them. “We're different in the way we run them from the way everybody else runs them. Everybody else is trying to show high income so they can have high distributions. We're trying to find ways to intelligently spend money, to make them better.” In other words, the rent that most owners paid out, Munger put back into the property.

He went on: “And, of course, our apartments do better than other people do, because the man who runs them does it so well for me. There are two young men who do it with me. But it's all deferred gratification. We're looking for opportunities to defer and other people are looking for ways to enjoy. It's a different way of going at life.” The transcript does not name the two men, and this piece does not guess. NBC News, in its obituary, put his fortune in early 2023 at an estimated $2.3 billion.

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This was not a late-life hobby. Before Berkshire Hathaway, Munger made his first real money in property. NBC's obituary describes an early condominium project on the Pasadena land of his partner Otis Booth's grandfather, and a 2008 Motley Fool account of Booth's career says the two doubled their money on a 40-unit Pasadena condo complex in about two years. Munger's own summary, quoted by NBC: “I had five real estate projects.” The man who, at the same 2023 meeting, said he owned just three stocks was doing at 99 what he had done at 35. He was not allergic to debt on it, either: earlier in the same session he said that “recently I did use a little bit of leverage here and in another place.”

The distinction he drew is the whole business of owning an apartment building. A building throws off rent. After expenses, the owner has two choices for what is left: pay it out to investors now, or spend it on roofs, kitchens, systems, and whatever else raises the rents and the resale value later. The first choice shows high income today, which is what a fund that promises regular distributions needs to show. The second defers the reward to a sale or a refinancing years out. Neither is wrong. They suit different investors.

The loudest practitioner of the first model is Grant Cardone, whose Cardone Capital raises money from ordinary investors to buy apartment complexes. The offering circular for Cardone Equity Fund V, filed with the SEC on Aug. 1, 2018, says it plainly: “Currently, our strategy includes paying a monthly distribution to investors,” with the stated intent to pay 65% of distributable cash to Class A members and a $10,000 minimum. The firm's website says it has “never missed a monthly distribution for over 240 consecutive months” and that more than 20,020 investors have put in $2 billion. That is the model Munger described as what “everybody else” does, and it is a legitimate one: a retiree who needs the check every month cannot wait for a refinancing in 2031.

Each model gives something up, and the filings say what. Cardone's circular warns that if operating cash is short, distributions would have to rely on “other sources of liquidity, such as borrowed funds” and proceeds from selling assets. Munger's way pays the owner nothing now, and the “better” he described only shows up when the building is sold or refinanced. He could afford that at 99 with a fortune estimated in the billions. Most of the people buying into a monthly-distribution fund cannot, which is why the fund pays monthly.

Munger closed the answer with a claim about enjoyment rather than returns: “You get more enjoyment out of life doing it my way than theirs.” It was the same answer he had been giving for six decades, first as a lawyer putting money into Pasadena condos, then as the vice chairman of Berkshire Hathaway (BRK.B) (BRK.A) who owned almost nothing else, and finally, as a 99-year-old who bought apartment houses because he wanted something to do with the money he was never going to spend.

On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.